SK Telecom Co Ltd (SKM) 2004 Q3 法說會逐字稿

Good morning and good evening. First of all thank you for joining this conference call and now we will begin the conference of the fiscal year 2004 fourth quarter CEO conference call by SK Telecom. Go ahead sir.

Good evening. Today's conference call will consist of the opening speech by SKT's President, Kim Cheng Keun, covering the third quarter results from 2004 and other matters of interest, followed by a Q&A session. The conference call is scheduled for an hour and a half.

Before we begin, let me also remind you once again that all the forward looking figures are subject to change depending on the macro-economic and marketing circumstances.

Now let me present to you President Kim Cheng Keun.

Good afternoon, thank you for taking part in today's conference call despite your busy schedules.

Let me first brief you on the operating results of the third quarter 2004.

The third quarter revenue was KRS 2.43432 trillion, which was a 2.1% increase quarter on quarter and a 1% increase year on year. Despite the tariff reduction starting from September, the revenue for this quarter edged up thanks to continuous new product development, quality improvement of the subscriber base and the wireless internet revenue expansion.

Most notable was the growth of the wireless internet revenue, the wider adoption of the high-end handsets together with the unlimited data service tariff plan and the new products like [Mobile Byworld] contributed to the robust growth of the wireless internet by 12.7% and 39% compared to the previous quarter and previous year, respectively.

Accordingly, the proportion of the wireless internet out of the total revenue excluding interconnection fee went up from 19% of the second quarter to 21.2% in Q3.

The operating income for the quarter was KRW 611.3b showing an improvement of 32.1% compared to the previous quarter. However, when compared to the same period a year before this figure represents a 25.5% reduction.

Operating income rose on a quarter on quarter basis, because of the stabilization of the overheated [NMC] market due to SKT's continued efforts, [indiscernible] self imposed market share control to bring clean marketing practice in the marketplace.

The subscriber turnout during the first half was about 8,000 per day. The same figure for the third quarter drastically drops to 3,300 per day. This is another factor pointing to the market stabilization trends. Supported by such a positive trend, the marketing expenses for the quarter fell to KRW 435.1m, which was a 17.9% of the third quarter revenue, a drop of 6.2% from the second quarter’s 24.1%.

Helped by the marketing expenses reduction, the net income for the quarter went up 32.4%, quarter on quarter, to KRW 395.5b, and EBITA margin edged up 6.2% from the previous quarter to 42.7%.

We expect the current market stabilization to continue into the fourth quarter. Rather than over-emphasizing the acquisition of more subscribers, the market-leading SK Telecom will continue to make strides in its efforts to fuel the overall market size growth, and to enhance its competitiveness through better service quality. Through these efforts, we will work hard to meet the revised annual guidance.

Let me give you a brief progress report on the growth strategies that were communicated at the Q1 CEO conference call.

A part of our growth strategy includes subsidiaries. To name a few SK Communications is expecting to double its revenue in 2004 compared to the previous year, reaching over KRW 110b in sales. Also, its operating income is expected to turn to black. In order to continue with this growth momentum SK Communication has plans to diversify and strengthen its business portfolio.

There are also plans to make inroads into overseas markets with the [indiscernible] business model.

SK Teletech is set on strengthening its competitive position as a smart niche player in the high tier handset market by focusing on profitability rather than simply seeking volume growth. Being aware of the importance of risk management in the handset industry, SK Teletech will not be remiss in conducting risk management.

In November, SK Teletech plans to establish a joint venture in China in cooperation with a local partner, to begin a handset manufacturing before the year end.

Let me now move on to the conversions Ubiquitous area.

First, regarding the satellite EMB, TU Media has brought forth the participation of broadcasting companies, very important partners within the value chain into TU Media Consortium, to solidify the business foundation.

The Broadcast Commission recently decided not to permit the re-transmission of the terrestrial signal. However, the Commission is expected to re-discuss the issue around the first quarter of next year. We will do our utmost to deliver the most competitive commercial services through efforts to secure the permission for the re-transmission.

In the area of convergence between the telecommunications and financial services, our mobile banking service added yet another banking partner in KB, making the total number of partner banks to 11. We plan to further expand a number of banks by another 4-6 within this year. Such efforts will solidify SKT's dominance in the conversion to telecommunications and financial arena and maximize customer retention in the current NNT environment.

That's not all. In April we launched the pilot service for the digital home business. And in September SKT secured the DcN trial business license. The consortium for the BcN trial business was formed on October 6, 2004 with [MOEs] concluded with 31 partners. The first round of test bed rollouts will begin from the end of this year.

Let me know tell you about the global business.

By taking [first] serious overseas mobile network operation in Vietnam, is showing an impressive growth, with a subscriber base of 100,000 at the end of September, after only about a year of operations. Considering the negligible 4% mobile penetration rate in Vietnam with a population of 80m, the potential for future subscriber growth is enormous.

Such positive prospects led to SKT's recent participation in the right offering of the company. We also plan to propel additional growth momentum by widening the service coverage, enhancing the handset competitiveness and strengthening the distribution network in Vietnam.

SK Telecom has simply been exporting solution products, such as wireless internet platform, to developing countries with no operational involvement.

In the future, we will also explore the operational business models, based on SKT's advanced technology, such as its value added services in advanced countries.

Next about the WCDMA and WiBro.

Regarding the WCDMA, the commercialization of the dual band, the dual merit handsets and the introduction of the twin phones the size of the EV-DO phone are expected this to take place by the end of 2004, relieving some short comings of the WCDMA handsets.

Also, the relevant technologies are progressing quickly. For example, the WCDMA hand-off function will be developed within the first half of 2005. Globally speaking, over 60 mobile operators around the world are expected to have launched either a commercial or a trial WCDMA service by the year end.

And the business prospects from the large scale multi-media services and the global warming are making the outlook for WCDMA service even brighter.

SKT believes it is strategically important not to lose first-mover advantage. Thus it is closely reviewing its long term investment plan. However, even if we increase the WCDMA related investment, the total CapEx target would be managed in a stable manner.

We will do our utmost to avoid any large scale CapEx change by deciding the CapEx at the level which can maximize the efficiency of the existing and WCDMA network.

The government's widely related guidelines on the operator selection process was finalized on October 14, 2004. SKT were [very] prepared for the license stage based on the announced guidelines, and we'll do our best to acquire the license in February next year. SKT seeks to position WiBro as the complimentary solution to investing mobile communication services, such as WCDMA.

WiBro will offer wireless internet services at a competitive price in the metropolitan areas where there is a high demand for high speed, large packet data services.

WCDMA, on the other hand, has a relatively lower transmission speed compared to WiBro and has a wider coverage making it optimal for a mid- to low-speed wireless internet services to be offered with a full service.

SKT will strive to make both services as successful as possible.

Next about the regulatory environment.

SK Telecom has continued its role as the dominant mobile operator in Korea, even in the face of the regulatory environment. This year was marked by challenging issues like the inter-connection fee adjustment, differentiated frequency usage fees, tariff reduction, extensive review of the approval trends of the merger with Contik Telecom and the suspension of subscriber acquisitions.

However, in our view, most of the potential regulatory risks related to SKT have materialized already. Furthermore, as the [indiscernible] competition environment are taking root through initiatives like the [ACS Tripoli] introduced MMP, and as the key marketing efforts made are SKT are contributing to the rapid stabilization of the market, we are not foreseeing any major asymmetrical regulations on SKT going forward.

Lastly, I will touch upon SKT shareholder value management.

We originally planned to use the proceeds from the Treasury share based [EB] issuant of last May for the re-purchase and cancellation of Treasury shares in case the foreign shareholding limit is raised. However, it does not look as if the foreign shareholding limit will be raised within this year. Therefore, we have decided to pay out the proceeds as special dividends after the Board approval at the beginning of next year.

I have mentioned on several occasions about SKT's rational and transparent management based on the BOD. SKT plans to expand the number of outside directors even further through a change in BOD structure at the 2005 General Shareholders Meeting. We will decide on the details through the BOD.

Let me lastly thank all the investors and analysts once again for your unwavering support even in challenging periods.

[OPERATOR INSTRUCTIONS]. This question will be given by Mr [Jun Ying Jan] calling from [Good Morning] Securities, please go ahead sir.

Thank you very much, I have brought basically 2 broad questions. Number 1 question relates to the CapEx item. You earlier mentioned that year's CapEx guidance is about KRW 1.7 trillion. So let me double check first of all whether that is a correct understanding. And you mentioned that there were would not be any drastic increases of CapEx targets going forward in the next year as well. So I'm wondering whether I could assume that it would be around the same figure as this year in terms of guidance?

And also a related question to that, I understand that the WiBro license is seen -- it will be given without too much competition. We were told that the criteria for the selection of the operators will also consider the contribution to WCDMA. So, I would assume that it could possibly imply that you have the license already. So, I'm wondering whether that means that you will end up having more flexibility in terms of the CapEx expenditure for WCDMA going forward.

And also, my second question is with regard to the unlimited data usage tariff plan. How many subscribers do you have enrolled in this tariff plan currently? And could you compare the ARPU of these subscribers versus the rest of the subscriber base.

First regarding your question about CapEx, yes it is correct we have annual guidance of CapEx for this year as KRW 1.7 trillion. And as of the end of third quarter, the execution rate of the entire amount is about 52 -- 52% or so. But as you have seen in previous years, most of the CapEx execution takes place in the last quarter. So I would assume that we will be expending about KRW 1.7 trillion until the year end.

And, as mentioned earlier, our CapEx target in the future will be not too drastically moving upwards in the next year as well. So, I would assume that it will be close to the figures of this year.

And also, about the WiBro related CapEx, as I told you earlier, WiBro will be used as a complimentary solution to existing mobile telephoning services that are offering to buy SKT. So, we currently have a EV-DO services and WCDMA services and relevant investment plans accordingly. So, WiBro will be supplementing or complementing these existing solutions, and to [ensure] such efforts we will try to make sure that we offer the best possible services on all fronts.

And rather than WiBro possibly affecting the CapEx expenditure for WCDMA, I would say that it would be actually the opposite. WiBro expenditures will be fairly affected by the WCDMA expenditures, I would say. And, however, we are currently drawing up the detail CapEX side for WiBro as we speak. So, I think that it would be too early for me to review too much detail at this point.

Regarding the data pre-tariff plan related ARPU, you could access our IR department to get some more detailed figures about the amount of ARPU contribution from this particular group. But to give you the subscriber base number, currently about 430,000 subscribers are registered for the tariff plan.

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

Thank you very much and good evening. I'm just wondering if you could first of all confirm that you're going to be sticking to a 62.3% market share by the year end 2007, as you had earlier indicated to the Government.

And then what does that imply for marketing expenses for next year?

Secondly, with respect to the satellite digital media partner business venture, I'm just wondering what your business case for this is at the moment, given that it appears that the terrestrial based digital media broadcasting consortium, which is likely to be set up in competition, there's no usage tariff. In other words, the business model for this is an advertising revenue model. So, how are you going to, as originally planned extract KRW 10,000 to KWR 15,000 worth of subscriber out of this venture?

And finally, just 1 more question. I have heard that you're considering investing around about a $100m in an NVNO operator in the US. I was just wondering if you could give us some details and explain the strategy and the likelihood of this investment proceeding.

Could I double-check your first question please? Did you say terrestrial DMB? Because your question amounted -- amounted to KWR 10,000 per person, in the beginning you said terrestrial DMB, but did you mean satellite?

Yes, for SK Telecom satellite DMB.

Okay.

Yes, let me first of all confirm that the 52.3% self-imposed market share limit, was until the end of year 2005. Let me confirm that portion. And the secondly, with regarding key marketing we are maintaining all efforts to maintain business strategy. So thanks to that, I believe that next year's marketing expenses will be rather low compared to this year.

However, because of the introduction of the [pool] by directional [NNT] in the market with the [LGT] taking part in the scheme as well, compared to the 2003 figures our marketing expenses for next year will be a little higher nevertheless.

And regarding to new media, I am sure that you might have some concerns regarding the Government's prevention of the re-transmission of the terrestrial TV signal inland satellite DMB business. From the beginning we were that the terrestrial DMB business and business model would be mostly reliant on the advertising rebated revenue.

Now regarding the satellite DMB however compared to the terrestrial DMB. First of all, we are launching the commercial services a year before the terrestrial part of it, and also our coverage is a lot bigger with about 84 cities being covered by the satellite. So, even in terms of coverage it's more excellent compared to the terrestrial DMB business.

And the same thing goes for the content in terms of number of channels and in the nature of the content. I'm confident that our business model is far better compared to the terrestrial DMB model. So, under such prospects we were rather confident that we could secure the market dominance early on. However, yes it is true that we are being affected somewhat because of the prevention of the re-transmission by the Government that was revealed recently. So, we are doing our best to come up with ways and solutions to overcome the current challenge.

And regarding NBA new operator related initiative, SKT has been seeking various measures to utilize our existing competitive edge, for instance the SKT platform and our estimate evaluated services. And by offering such differentiated services we are seeking various ways to succeed in the global market.

So, NBA was one of those strategies that we were considering. However, I do not recall that we mentioned specifically about the $100m investment in that particular area. So, as soon as more the detailed plans come up, we will make sure that we will re-communicate those issues immediately with the investment community.

Thank you very much.

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

Yes, thank you very much for the call. First of all, we have 3 questions. We are relieved to see that your margins show clear signs of recovery, but a lot of investors that we met in the last few weeks have a little more -- they want a little more confidence that the competitive intensity will continue to remain stable. And most of us worry that if 1 operator decides to cheat that that could trigger a nasty chain reaction. What mechanisms do you believe are there in place to keep the marketing costs in check for the industry going forward?

Second question, when SKT re-acquired some stake in [Hana] earlier this year, I remember that the Company stated that it has no intention of acquiring any further stake in [Hana] for some time. We all know that some of [Hana] shareholders lock up expires next month. Does SKT have any plans to increase its shareholding interest in [Hana] in the near term?

A final question, we have spent over 2 weeks on the road meeting investors in both Asia and the US. And most investors believe that when nearly half of the company is owned by foreign investors, SKT's benchmark for shareholder return policy should not be the average companies in Korea, but they should benchmark against the global leaders. Does the management have any plans to make SKT's return policy any more attractive for 2005 to reward investors who have remained faithful with your Company for the past 2 years or more?

Thank you.

First regarding the market stabilization, I guess you're wondering aren't you at what point in time can we maintain such stabilization. Now 1 thing I could tell you from SKT's prospective is that we learnt a great lesson through the ENT introduction phase. We all learnt that the cost to our competition in order to secure subscribers is only a negative sum gain. And I believe that all 3 mobile operators in [Tria] are well aware of such negative impact on the profitability from such cut-throat competition.

And first of all SKT has no intention to increase the market share further. And in order to communicate that strong commitment, we have emphasized the self-imposed share, that's market share, cap of 52.3% this year.

Moreover, the Government is quite adamant about imposing the subsidiary band by all mobile [totals] in Korea. So, I believe that the Government will continue to monitor the market situation quite stringently until the end of this year. So, a such mood, I believe will continue into next year.

And regarding our relationship with the 6 main service provider [Hana], we are always open to alliance possibilities with any company under present competition, our competitiveness enhancing strategy. So, we are maintaining active exchanges with [Hana] as well. But at the current point, we have no further plans to acquire more shares of [Hana].

And regarding the pay-out ratio and the shareholder return policy, I believe that SKT has great business opportunities emerging in the conversion in ubiquitous area. And there are areas where SKT wants to invest further to secure that leadership position in that market as well. And currently, with regards to the pay-out ratio improvement, it is true that there are limited opportunities for us to further re-purchase and cancel Treasury shares, because of the foreign shareholding ownership limit that is currently imposed.

So, but we believe that there is no need to hold on to extra cash apart from what is required on the new business development. So, that's our policy. So, we will continue to listen to these suggestions and recommendations from investors, and we will conduct further in-depth analysis on this and we will benchmark many other players become to any decision.

The following question will be given by Mr. Jung Wan Sal calling from [Hendy's] Securities, please go ahead sir.

Yes, I have 2 questions. First, I would like to mention that while this internet revenue increase is quite encouraging, however at the same time expenses relating to wire internet services have increased as well. So, could you share with us the margin or the net effect on the wireless internet revenue and tell us the trend with regards to that area.

And secondly, looking at the balance sheet for third quarter, working capital increased by -- about KRW 470b, and so although we had the FTS of KRW 500b it seems we do not have too much leeway with extra cash. And I see that there is additional increase of the account receivables, could you share with us the reasons behind that increase, and how do you assess the trend in terms of receivables by the year end?

Yes, let me answer your first question about the wireless internet related expenses first. Yes it is true that that particular expense item went up at the same time, but it's only natural that we expect these rises according to the revenue increase. But regarding exactly where and in what form such expenses increase, I believe our IR department will get back to you at a later point with more accurate numbers.

And regarding the receivables, as you mentioned it is true that there was a temporary increase of receivables. More exactly by the -- about around the end of September there was [Twosoff] or the [train] Thanksgiving holiday for 5 days and during that time the automatic fund transfer, which was scheduled for SKT amounting to KRW 480b was temporarily delayed. And so because of that fact, a temporary up-kick in terms of the receivables took place.

However, by the beginning of October things came to a normalized state, and I believe that such normalized state will continue until the year end.

The following question will be given by Mr [Jalmo] King calling from [UA Assets] Securities, please go ahead sir.

Yes I have a question about the marketing expenses. Until Q3 I did a calculation and it seemed compared to the overall revenue it amounts to about 20%. So, and I believe that there is a possibility that it will go up a little more in the fourth quarter, but do you see any other that 2005 marketing expenses will be higher than the level of 2003?

Looking at your 2003 figures you had, marketing expenses ratio versus the revenue, of about 15.6%. So is this going to be higher than 15.6%? And also around 20% of 2004, can I assume that 2005 marketing expenses will be somewhere between the 2 figures, 15.6% and 20%?

First of all, regarding marketing expenses for the fourth quarter, we will continue to refrain from taking too much volume growth in the market. So, we will continue realize market stabilization and also tighten expense control. So, until the end of this year, we are pretty confident that you will be able to achieve the annual guidance of about 20%. So, I don't think you need to worry too much on that.

Yes, and regarding marketing expenses for next year, we are currently at the state of finalizing the plans ourselves. So, it's a little too early for me to reveal the actual numbers. However, I could tell you that looking at this year, even considering the NMP introduction we had originally issued a guideline of about 18%. However, higher than our original expectations we ended up reaching 20% level.

So, it is our hope that in year 2005 we will not exceed the 20% level. So, I guess it will be around 18% or a little higher, but definitely we are hoping that it wouldn't go beyond 20%.

The following question will be given by Mr Jo Mo Cho, calling from UB Securities, please go ahead sir.

I have 3 questions, first of all regarding the Chairman of SK Group, Kil-Seung Son, he has recently announced his plans to maintain independent management structure for the Group. And I'm wondering whether that announcement or that strategy has impact SKT's position in any way or will that affect SKT going forward?

Second question, last month between the Fair Trade Commission and Ministry of Communications, there was a -- some controversy or discussion about possible de-regulation on -- in terms of the tariff regulation. Now if that loosening of the regulation takes place, then is that a good news for SKT? Because I recall reading a newspaper article in the past, saying something like SKT not considering that as a positive move. So, could you shed light on that please?

And third question there was a report recently that SKT were possibly look into participating in the terrestrial DMB business as well. Could you share with us your strategy on terrestrial DMB?

First regarding the independent management, from SKT's prospective there is no significant change that will make our situation any different from the current situation. As mentioned earlier, SKT takes pride in the fact that we currently maintain that one of the most transparent view of its structures in comparison to any other domestic companies in Korea.

And I believe that there might be some gap between the reality versus some perceptions still. I believe that there has been more assurance on that end. So, as I mentioned in the always we will continue to maintain a view to focus, view de-centered transparent management going forward.

And your -- going the second question, about the tariff control measures de-regulation. I believe that if the competition takes through in the market, ideally it would be good to have the market decide on the price more proactively. However, I believe that this issue pertains to inter-Governmental discussions and coordination efforts, so I don't think that it would be appropriate for me to talk about that aspect today.

And regarding the terrestrial DMB, well for now we will mainly focus our satellite DMB initiative. And with regards future participation possibilities, we will determine that after analyzing against various issues relating to our core businesses.

The following question will be given Mr. Jack Kong from CSFB, please go ahead sir.

Yes I have 2 questions, the 1 question during Q3 MOU numbers slumped more than expected. Of course, it is true that the correlation you have between MOU and ARPU is not that strong and we are aware of that. But even considering that fact, I believe that the MO figures are a lot lower, so can I hear the management's perspective on that?

And second question is related to the bad debt portion. In Q3 the bad debt was recorded as KWR 19.3b. However, it means that the second quarter there was no such amount or any such amount reflected in the record, so any reason behind that?

And I recall that there was a recent newspaper article about the bad debt issue that was brought up in the Congressional Auditing [party], so has there been any recent change that calls for any drastic defenses in this quarter compared to the previous quarters?

Here in the third quarter, it is true that MOU has dropped but it's mainly due to cyclical reasons. First of all, there was the summer vacation and also the 5 working day scheme is taking [very] [indiscernible] [spikey] and in the month of August there was the Olympics, and in the month of September there was the 5-day [toosok] holidays. So those were the main reasons behind lowering of the MOU figures.

However, as you have mentioned as well, because of the increased use of free holiday or other types of fixed price plan usage, the correlation between MOU and ARPU is becoming less and less important. So that is also true.

And to answer your question about the bad debt allowances, we have been focusing on subscriber base quality improvement and as a way to support that strategy, we have been increasing the number of involuntary suspension alternatives in case of overdue payments by the subscribers. So, in case there are overdue or late payments, then we are utilizing actively the professional collection companies.

So, on top of that we have the insurance scheme and other robust profits to protect our loss in any case. So, we have 4 years in which we have the record of the recovery rate of about 99% within the 12 months after foreign delinquent. So, in many ways we are very much protected in that area.

The following question will be given by Mr. Ho Jin Lee calling from J P Morgan, please go ahead sir.

First of all, SKT's market share has dropped by about 3%. And I believe that there have been many reasons behind that, but 1 of the reasons I could think of would be the excellent marketing efforts done by LNG Telecom. Their handsets are improving quite rapidly and their service quality is improving significantly as well. So, in the current environment, I'm wondering how SKT's market share will be defended going forward.

I'm wondering whether internally SKT has any -- the lowest, I guess, resistance line in mind and how you could actually protect that line. Do you have any strategy?

And the market is stabilizing rapidly, I think it is quite encouraging to see companies trying to seek competitive enhancement on a very basic fundamental. So, SKT will continue to provide the best services possible to increase any period of [harmony] to the customer satisfaction.

According to the recent customer satisfaction survey conducted by TCSI, SK Telecom has emerged as a Number 1 mobile operator in Korea for the seventh consecutive year. And based on such competitiveness, I believe, that our mathematician will be stably managed.

As you mentioned, it is true that we saw a drop of 3% market share in the first half. But during the second half, we already see the recovery there so without stretching ourselves too much we are maintaining the market share pretty healthily. So, I believe that our market share is rather stable as we speak.

The following question will be given by Mr. Cho U Cho calling from [Hanwan] Securities, please go ahead sir.

I have 3 questions, first of all you said that in year 2005 the marketing expenses will not exceed about 20% of revenue portion but, did I possibly mishear you, did you actually mean to say 18% instead of 20%? So, could you make a comment on that?

And second question, maybe I did a calculation wrong, but in the third quarter for the newly acquired subscriber, per person initial commission announced actually increased, so what is the foreseeable trend in the fourth quarter.

And third question, in 2004 your marketing guidance is about 20% of the revenue and in the fourth quarter when compared to the third quarter you have the remaining marketing expenses budget of about KRW 470b, which is actually higher than the figure of third quarter. So do you plan to expend all that amount in the fourth quarter?

We believe marketing expense portion in the third quarter, the proportion was about 17.9%. So, it should be around 18%, we should not go to the level of 20%.

And for the fourth quarter, per person initial commission amount would be about the same as the third quarter or less. You might be slightly concerned about the possible recurring of the fourth quarter 2 years ago when we were suspended from new subscriber acquisition and during which time we had to compensate for some of the dealers. And I can reassure you that there are no such plans.

It is true that per person initial commission during the third quarter amounted to KRW 124,000 per person, which is about KRW 10,000 increase per person. However, this was a temporary uptake, because in the beginning of July there was a new introduction through NNT during which time the market boom up took place and temporarily but that extent is increased.

But as we started proceeding with the key marketing strategy and as those resulted started showing some results in the market, such extent that we detract it immediately. So, during the fourth quarter we will not see such a high per person initial commission.

The following question will be given by Mr. Nikos Allen from Boyer Allen, please go ahead sir.

Hi, obviously we saw your margin expenses come down quite well as you indicated they would. But at the second quarter you also indicated that you were expecting EBITDA margin for the year to be 42%. And it looks as if you'll have to seek quite a good increase, really quite a strong increase in EBITDA margin in the fourth quarter back to towards first quarter levels. Are you going to be able to achieve that?

Are you still sticking by the guidance of 42% for the year?

During the fourth quarter we will continue to maintain the key marketing strategy and we will also conduct efforts to increase ARPU as well. So, in the second half we will try very hard to achieve about 44% EBITDA margins. So, overall we will work -- do our best to achieve the 42% annual guidance as planned.

Thank you.

The following question will given by Mr. Michael King calling from Morgan Stanley, please go ahead sir.

Yes. Hi, I have 2 questions. First 1 is on other costs and what I mean by other costs is including other commissions, special fees and other administrative costs. I notice that continues to rise, and I think 1 of the reasons given was that that expense has increased in third quarter. So if you could share with us what you think other cost trends will be in fourth quarter and going forward. Because, if you look at that category rising very rapidly quarter on quarter basis all the way from first quarter.

And more specifically, do you expect bad debt expense to be at third quarter level in fourth quarter, and going forward?

And secondly, if you could comment on your purchase of SK Life's Cooperative, which was announced about a week ago. If you could just share with us what the rational is and whether you have any other investments planned at this point?

As you said earlier the backdate allowance is the biggest factor behind the increase of the other costs portion. In the other costs area there can be other items such as the contents provider commission, which means that we related to the increase in wireless internet service revenue. And as you can see as we introduce different new business models and services we are treating new types of expense items as well.

For example, recently we had to pay certain fees to conduct promotion activities at various banks recently and there was a temporary expense item that as you can see it is other cost item is showing increase. And out of those, the backdate allowance is taking up the biggest portion. And during the fourth quarter there is a slight possibility that the involuntarily succession of services on some of the delinquent subscribers may increase slightly. I don't think that massive allowance will change too significantly from the third quarter figures.

And I believe that you are referring to our recent acquisition of the training center and the reason behind such acquisition is that SKT needs to further develop their competence of their man -- human resources of the Company in order to grow in the future. So, already apart from our existing training center located in the area of [Epong] outside of Seoul area, we are already outsourcing quite a bit in terms of our training needs are concern, including SK Academy and other outside training centers.

So, there was a significant need to secure such training institutions and facilities for our Company's employees. However, around the metropolitan area because of a lot of the zoning related institutions it is practically impossible to newly develop such a wide area of training centers. So, considering all the locations and other investment values, we decided that this particular acquisition will help the Company.

And if you are wondering about the price of the acquisition, both the [Stellar] and the SKT have appointed an independent appraisal institution to conduct the necessary due diligence to come up with the appropriate sale price. And we also reviewed various clauses on the under the [Fair Trade] Commissions regulations and so are complying with all the necessary regulations. We passed this item through BOD and we've reviewed it early.

The following question will be given by Mr. Gill Son calling from UBS, please go ahead sir.

I just wanted to get a bit more clarification on your point that CapEx you should be able to control similar to the WKR 1.7 trillion level this year into next year. Does this -- when you define CapEx would this include costs or cash outflows for WiBro including the license fee? And even if you were to pursue an equity type investment into a [JD] type structure, the total cash outflow next year for WiBro would that be included in your KRW 1.7 trillion guidance for next year?

And secondly related, as you push out your globalization strategy, do you have the same type of confidence in keeping the cash outflows from investment assets i.e. equity investments to a similar level as this year into next year, or could you give us some indication as to how the investment asset cash outflow could like look like next year versus this year?

And finally regarding the China joint venture handset business, could you give a bit of detail as to what type of investments are going into that business in a bit more detail, clarity there that would be very helpful.

Thanks very much.

First of all regarding the KRW 1.7 trillion CapEx amount for next year, it does not include any equity certification as you mentioned. And also with regards to WiBro even if we do participate in that business, the actual investment would start taking place from 2006. So, therefore the 2005 figure does not include that portion.

Let me answer your question about the Chinese joint venture first. In the handset business SK Teletech has the shareholding of about 60% and the 2 Chinese partners [Chang Ching] and [Xhai Chan Prux] each or together hold 40% share. So, out of the entire USD 30m investment about USD 180m is being invested by SK Teletech.

And so by the beginning of November, a [joint] corporation will take place in China and also as soon as we acquire the BcN license, by the year end we'll try to introduce about 2 models in the market. But in that business initiative SK Teletech will still maintain the Smart niche player strategy minimizing risk.

Can I just clarify that -

Hang on, regarding the cash outflow, it will be about the same as the 2004 figures and, I guess you are referring to the globalization strategy related outflow and that particular plan is under construction as we speak. So as soon as it is determined we will let you know, but such decision will be made through the BOD.

And as for [STF] related guidance it would be difficult for me to share with you at the current point. By the way, there is a correction to the earlier interpretation about the Chinese joint venture. The entire portion of investment is about USD 30m.

And their portion is $30m and the SKT portion is $18m, SK Teletech's portion is $18m, we establish.

Can I just make one clarification you mentioned that WiBro investments should start in year 2006. So, if you do win a license in February, you do not expect to have to pay, for example license fee or any, start any CapEx within the year of 2005.

Regarding the WiBro license fee, I will have to get back to you with exact figures through the IR department. I believe that there is an initial fee involved and there will be some running costs as well. However, those figures are not reflected in the CapEx amount.

Okay.

The last question will be given by Mr. Son Ling Chan calling from Samsung Securities, please go ahead sir.

I'd like to ask the following 1 question. As the subscriber base is increasing, I notice that your monthly commission is actually reducing quite a bit. And according to my analysis compared to [business] 2002 figures, this is the lowest figure in this category. So, I'm wondering whether there has been any significant change in the way you deal with the dealers. What is the reason behind this reduction?

Actually there have been no structural change and rather in the beginning -- in the month of September there was the [toosok] holidays, I told you. And some of the commissions that had to be paid out in the month of September was paid out later in the month of October. So it's the same logic as the receivable that I mentioned earlier.

We would like to close the Q&A session at this point.

We will now hear the closing remark from the President of SKT.

I would like to thank you once again for taking part in today's conference call and asking lots of questions and giving us the necessary encouragement. We appreciate that.

As I mentioned earlier in the third quarter, SK Telecom thanks to the hard efforts of all the employees and the management of the Company, and thanks to the stabilization of the market, we were able to record an improved operating result this quarter compared to the first half.

However, we the employees of SKT will not be -- remain complacent, but rather we will continue to develop new products and we will try to improve ARPU, and tightly manage marketing expenses and other expenses, so that we could achieve the annual guidance for 2004.

I ask for your continued support and interest, and thank you very much.

This concludes the 2004 CEO conference call for the quarter.

Thank you.