SK Telecom Co Ltd (SKM) 2005 Q4 法說會逐字稿

[Translated]. Good morning and good evening. First of all thank you all for joining this conference call and now we will begin the conference of the fiscal year 2005 fourth quarter earnings results by SK Telecom. Please go ahead sir.

[Translated]. Good morning. Today’s conference call will start with the opening remarks by President Kim Cheng Keun of SK Telecom on the 2005 earnings, 2006 planned and other areas of interest, followed by a Q&A session.

This conference call will last about an hour and a half and interpretation services will be provided for the convenience of all analysts and investors.

Let me remind you that all the forward-looking statements are subject to change depending on the macroeconomic and market conditions.

Let me now invite President Kim Cheng Keun.

[Translated]. Good morning. I would like to wish all of you a Happy New Year with health and prosperity.

We had to change the conference call time to the morning due to internal scheduling issues. I ask for your kind understanding.

Let me start with the earnings highlights for 2005.

The year 2005 was a successful one for SKT. The qualitative competitiveness of core businesses was enhanced from the revenue growth and improved management efficiency through company-wide competency improvements. The following foundation for new businesses was established to prepare for the conversion environment by strengthening the strategic contents area.

Firstly, the annual revenue grew 4.7% year-on-year and reached KRW10.16 trillion, surpassing the KRW10 trillion mark driven by the steadfast subscriber growth and ARPU increase based on competitive data product offerings. Most notably, the wireless internet revenue maintained a continuous growth, recording KRW2.46 trillion, or a 35% hike from the previous year. This vendors’ wireless internet revenue too represents 26.6% of the total revenue net of interconnection fees.

Effective and efficient marketing activities enabled the Company to achieve the marketing expense to revenue ratio of 17.2%, a reduction of 1.3 percentage points from the annual guidance. The fact that the Company achieved the revenue target with lower marketing expense reflects the Company’s commitment to take a leading role in market stabilization while maintaining market leadership. As a result, the operating income rose 12.5% compared to the previous year, to record KRW2.65 trillion.

The net income increased 25.2% year-on-year to KRW1.87 trillion, including the KRW130b after-tax gain from the sale of SK Teletech.

The EBITDA was KRW4.29 trillion, exceeding the guidance, to record 42.2% of the revenue.

The actual CapEx expenditure was KRW1.47 trillion, a reduction of KRW130b from the original guidance.

Let me now move onto the business plan for 2006.

In 2006 new technologies like HSDPA and WiBro will be commercialized, while the competitive landscape is expected to be unpredictable due to the factors such as changes in subsidy regulations. Against this backdrop, SKT will focus on solidifying market leadership and enhancing management efficiency.

First of all, the revenue target for 2006 is KRW10.5 trillion. Despite the removal of the caller ID tariff, the Company will achieve revenue growth from ARPU improvement through enhanced customer oriented management and various content services such as Melon, GXG and Sizzle.

Notably, the Data and Content business, which continues to provide growth momentum for SKT, is expected to take up 29.5% of the total revenue, excluding interconnection fees.

The marketing expense guidance is 17.5% of revenue. SKT will continue to make best efforts to maintain market leadership in 2006 while ceaselessly working towards market stabilization.

The EBITDA target for 2006 is KRW4.4 trillion. Starting from this year, we have decided to communicate in terms of EBITDA in its absolute value rather than EBITDA margin in order to better reflect the business characteristics of steadily expanding Data business portion.

The CapEx target for the year is KRW1.6 trillion.

Let me now move onto the growth strategy.

In order to establish sustainable growth platform for the future, SK Telecom will not only enhance the core business competitiveness in the convergence environment, but also continue to expand the globalization base which we have pursued over the years.

Let me start with the wireless internet business. I believe we have to leverage the mega trends of fixed wireless convergence and the increasing customer need for multimedia content to the maximum. Based on our experience of offering services like Melon and Mobile Cyworld, SKT will actively explore new services that could meet those demands, adding to the continuous growth of the core businesses.

The HSDPA service, which will be commercialized in the first half, is expected to upgrade the service quality of wireless internet in the mid- to long-term. We will nevertheless operate the system flexibly considering the initial system stability and marketing environment in a comprehensive manner in order to ensure successful adoption of the service.

We plan to position WiBro as a complementary service to HSDPA. In the early state of commercialization in 2006 we will put more effort to explore the marketability of the service and to establish a solid business model rather than engaging in mass marketing.

The launching of terrestrial DMB in December last year has created a competitive landscape in the DMB market. As a result, we expect the pie-size of the DMB market to expand through overall boom-up of the DMB market. SKT will strengthen its competitiveness through further improvement in satellite DMB’s differentiated strength area of the coverage and content diversity and through resolution of terrestrial signal re-transmission issue in the near future.

Let me now move onto the current global businesses.

The MVNO business in the U.S. market will launch its services by the first half of this year under the brand name of Helio after a year of preparations. Helio is expected to create a wireless internet boom in the U.S. focusing on the young age group users with high data needs, offering them differentiated services in terms of content, distribution channel and handsets.

Also, in the high growth potential market of Vietnam, SKT in November last year decided to invest additional $280m to secure a competitive edge. The expanded coverage from the investment is expected to help the Company to establish the ground and to become a major player in the future.

Since the experience on the current global businesses could provide a meaningful reference for our future globalization efforts, we will do our utmost to achieve tangible results in the U.S. and Vietnam.

As was communicated in the past, SKT is continuing to seek global business opportunities in other Asian countries with cultural and geographical proximity. And such efforts will continue in the future. Let me assure you that SKT will continue to exercise the most prudent investment principles when reviewing future global business opportunities as was proven in our past endeavors in India and Indonesia.

Lastly, let me move onto the shareholder return policy.

The payout ratio for 2005 is 35% of net income, including interim dividend already paid out.

However, after comprehensive consideration of capital requirements for resources and financial structure under various growth scenarios we have decided to increase the shareholder return for the next two years with Board approval. Under this plan, the payout ratio for 2006 would be increased to 40% of net income with additional share buyback of KRW200b. The shareholder return in 2007 is expected to be at a similar level as 2006.

Following the year 2005 we expect 2006 to be another pivotal year in securing the platform for future growth. The management and employees at SKT will do our utmost to maximize shareholder value and to establish a sustainable management system.

Lastly, I would like to express my sincere gratitude to all the investors and analysts for your unwavering interest and support for SK Telecom.

[Translated]. We will now begin the Q&A session.

[Translated]. [OPERATOR INSTRUCTIONS]. The first question will be given by Mr. Chung Young from Handel Investment Securities. Please go ahead sir.

[Translated]. Thank you very much for this conference call. I would like to first raise questions regarding the shareholder return policy you just mentioned. You said that the payout ratio will be raised to 40% of net income and additionally you will buy back Treasury shares amounting to KRW200b. However, is the foreign ownership limit placed in the reverse fashion so that you cannot repurchase the Treasury shares as you planned, then I was wondering whether you have alternative plans to return that additional KRW200b to the shareholders?

My second question is regarding your guidance for 2006 regarding the revenue. When setting that revenue target, what was your target for subscribers and also what will be the overall market share in terms of those subscribers from the entire market?

[Translated]. To refer to your first question, so far, because of the limitations regarding the share cancellation after the buyback, our current plan is only up to the Treasury shares buyback portion. I believe that since the cancellation immediately will not be possible, I could only assure you that such repurchase, the KRW200b worth of Treasury shares, will not be put out for sale in the market any longer.

And to achieve the KRW10.5 trillion worth of revenue target, we are basing the subscriber number at about 20m people and the overall market size in the entire market is expected to be about 3.84m.

[Translated]. Currently there are 11 participants waiting with their questions and the following question will be given by Mr. Bill [Song] from UBS. Please go ahead sir.

Thanks very much. The first question relates to your global business strategy. It seems you're moving in a direction of focusing more on Vietnam and U.S. MVNO venture now. Earlier you commented about China being the next target after looking at India and Indonesia. In the past several weeks we've seen a lot of clarity from the Government which indicates very less vigor for introducing foreign capital investments in the 3G market. So can you just update us whether you still wish to proceed, or whether there is any opportunity to invest in China as part of your global bid strategy?

Secondly, in terms of marketing costs, it seems quite good in 2005. However, if you look at other costs as a percentage of revenue, that continues to increase. Just if you could explain whether you could perhaps potentially control costs better in non-marketing related areas to lift your margin performance this year? Thanks.

[Translated]. To answer your question about the investment into the Chinese market, we are fully aware of the recent trends in the Chinese market. As you are well aware, China is a very attractive market indeed with a population of 1.3b and also a large market potential and similarities in terms of culture between Korea and China etc.

However, we are aware of the fact that we should be quite prudent in approaching a market such as China as well, especially in terms of the telecom industry. The regulations coming from the Government could significantly change the future path of a company. Therefore, we should be especially prudent.

However, in terms of other services such as Cyworld and portal service through [UniSK], we see a great potential regardless of the Government regulations. So we are currently reviewing various types of scenarios regarding Chinese market. But one thing is for sure, we will be prudent indeed.

You asked a question about the rising non-marketing related expenses. Because the voice revenue growth is stagnating while the data and contents and other network related businesses are increasing, it was inevitable for us to begin incurring more expenses in the Data and Network area starting from 2004 and on. Therefore, we are currently pursuing various measures to enhance efficiency in terms of CapEx and OpEx. To do that we are developing technologies and ways to improve efficiency such as projects such as Six Sigma and organizational efficiency enhancement projects which we have recently initiated. Then such efforts will continue in the future.

Thank you.

[Translated]. The following question will be given by Mr. Matt Evans from CLSA. Please go ahead sir.

Good morning. Thanks for the call. Congratulations on the impressive results. I'm interested in the labor cost line which actually fell slightly year-on-year by about 3%. Could you explain a little bit more or elaborate on the comments in the materials that said that was due to a decrease in the incentive bonus, how that bonus is calculated? And what labor costs are likely to do in 2006?

Secondly, on the DMB side, you alluded to the possibility that you still might acquire the rights to retransmit terrestrial broadcasting. How optimistic are you that you will achieve that change in the regulation and when do you think that will happen? And if it doesn’t, do you think that the TV media platform can still be viable because it seems to be quite difficult to find consumers anecdotally who think that SDMB is a good deal now that TGNB is available for free?

[Translated]. Let me answer your first question regarding the labor cost. As you are well aware, there has been a slight change in terms of the reflection period for the incentive bonuses for this year. So that might have caused a slight change there. And as you know, the bonus calculation is basically linked to the profitability of the Company.

And regarding the prospects for the 2006 trend for labor cost, I expect that the current ongoing trend will most likely remain. Therefore, I don’t expect any big deviation from the recent trend in terms of labor cost.

And you asked a question about the possibility of re-transmission of the terrestrial signals and I could tell you that currently we are having active discussions with broadcast companies such as NBC and SBC as we speak. So the atmosphere is currently quite friendly, so I believe we could be somewhat hopeful. But just in case there can be delays, we are preparing with other contents such as sporting events and other foreign channels from other countries as a backup to provide more channel diversity and differentiation.

And finally, make some comparison between terrestrial and satellite DMB. First of all, the biggest difference will be the number and the diversity of channels. First of all, the satellite DMB has more number of channels as opposed to the terrestrial and also the terrestrial DMB is only limited to the metropolitan area.

And also, in terms of the in-building coverage, because of the lack of gap fillers for the terrestrial DMB, of course the coverage is a lot less compared to the satellite DMB currently. And so in terms of content and coverage, we could differentiate, I believe. But as I mentioned earlier, I believe that the introduction of terrestrial DMB could ultimately expand the entire pie of DMB market. Under that understanding, we are currently co-ordinating our strategies as we go.

[Translated]. The following question will be given by Mr. Jeff Loff from CSFB. Please go ahead sir.

[Translated]. First of all congratulations on your excellent earnings. I have two questions. First of all, regarding the subsidy issue. I believe that the Government policy on the handset subsidy has not been fully decided yet and there are numerous speculations in the market. And some say that it would be only a partial lift of the handset subsidy ban. In that case, some people are saying that it might be the most advantageous to SKT, for instance and so how would that affect the marketing cost going forward is my question? And what is the basis for the current marketing guidance that you have given today? So under which scenario of handset subsidy did you come up with that marketing expense guidance?

And second question is regarding the interconnection fee adjustment between this year and next year. So how will be the change be reflected? Is it for the good, or the bad and could you elaborate on that content?

[Translated]. Regarding the marketing expense guidance, our assumptions are that we will be maintaining the MMT marketing situation as last year and that we will be introducing a new technology, HSDPA, and also that we have to pursue a customer value innovation going forward. So currently, we are analyzing and reviewing various scenarios of handset subsidy lifting, or partial lifting, as we go.

But it would be very difficult for us to comment on how we could counteract with such and such policy coming from the Government because the Government itself has not decided fully on which direction it will go. However, one thing that I could tell you is that we would be, regardless of the direction of the Government policy, we would be focusing on the core competitiveness of the Company leading towards market stabilization. So that principle is unchanged.

However, if there are any bigger than anticipated changes or impact on SKT because of the subsidy regulation, then we will immediately communicate with the market to the best of our ability.

To address your question about the interconnection fee, as you are well aware, the decision on the interconnection fee adjustment is expected to be made in the first half of this year. In the mid- to long-term prospective we expect the differentiated allocation of the interconnection fee, or the asymmetry between the operators in Korea, will narrow going forward. So we expect such narrowing of the gap between operators to be reflected within this year.

[Translated]. The following question will be given by Mr. Hugh Chow from Goldman Sachs. Please go ahead sir.

[Translated]. Thank you very much and I would like to also congratulate you on the excellent earnings and achieving the guidance in the previous year.

I have two questions. First question is regarding the CapEx for the 2006. You gave us a guideline for the next year and of that amount I would like to know how much of it is allocated to WCDMA, HSDPA technology? According to some press reports recently it seems that you also plan to invest further in EV-DO RA. In that case, could you elaborate on in which fashion and what would be the size of the CapEx in that area?

And the second major question is also going back to the marketing expense issue. Of course you have talked about it a little bit in the beginning. However, if you look at the annual guidance of marketing expenses, last year’s guidance was 18.5% whereas this year’s guidance seems to be 17.5%. So it seems that you are looking at the marketing situation, or the environment to be a more friendly one. Is there any particular reason why you are being so optimistic about the marketing expense area?

And if the Government decides to go ahead with allowing handset subsidy to those long-term handset owners of more than two years, then regardless of your own intentions, you might be locked into a fixed marketing expense scheme. So in that case even would you be able to achieve the 17.5% target?

[Translated]. Let me talk about the CapEx first. As you know, the overall CapEx guidance for next year is KRW1.6 trillion out of which HSDPA related CapEx is to be about KRW570b and also WiBro KRW170b.

And regarding Revision A related technology, we did review a possibility of investing for the CDMA network capacity increase. However, currently we have no concrete plans for such investment for now.

And regarding the marketing expense, as I mentioned earlier, for 2005 it was the first year of three-way phone mobility as you are all aware and nevertheless we were able to achieve the 17.5% target. So we consider that figure to be quite meaningful going forward as well. That’s why we set our guidance at the 17.5% level.

And of course there are many discussions going on regarding the future policies in terms of subsidies coming from the Government. But both the Government and SKT share the same opinion that the current mobile telephony market is at a stagnant growth stage, therefore we will not and should not put in all our available resources to securing or taking away subscribers from each other.

So that is the shared opinion and we are continuing with discussions and I'm sure the conclusion will be quite favorable for all and if there is any possibility of us going through some different impact because of the subsidy change, we will then immediately communicate that change with the market.

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

Thank you for the call and I would like to suggest that your improved payout policy at least is a step in the right direction.

Related to your share buyback program, can you clarify if you plan to buy back another KRW200b worth of your shares in 2007, or is it for this year only?

Can you explain the management’s consideration for not using the KRW200b buyback announced for this year toward cash dividend?

And second, on your phone mail, or SMS, the discount applied to your monthly call charges seem to be eating into your monthly fees by growing amounts every quarter while your wireless internet revenue growth for this past quarter remained almost flat. That’s just 1% Q-on-Q growth. Can you shed some light on how the management thinks about this?

And my final simple question is how do you expect your operating expense to increase in 2006 as the result of operating a dual network? Thank you.

[Translated]. First of all the shareholder return for 2006 is expected to be at a similar level as [2006]. However, when it comes to the more detailed ways in which we will do that, we are looking at various options and we will be looking at the market climate at that time to decide the details and we will communicate that before 2007.

And secondly, you asked a related question as to why not has dividend for KRW200b this year instead of Treasury share buybacks. Well we decided for the Treasury share buyback because first of all, number one, it will give a similar effect because we will be reducing the number of outstanding shares that would call for dividend by buying back these shares. And also we would ensure and leave us some flexibility in the shareholder return policy. So that is why we decided to go for Treasury share buyback as well.

And you also asked a question about the SMS or the wireless internet area. Well compared to the third quarter of last year where we had a lot more promotional events during the summer and because of the Korean Thanksgiving, the fourth quarter saw a little bit of a downturn there. However, due to the Melon and Mobile Cyworld and other types of strategic product marketing activities being reinforced and due to the more encouraging web marketing results, we are actually looking at an upward trend in those areas recently. That is why we have set the guidance for 2006 in terms of wireless internet portion out of the entire revenue, excluding interconnection fee, to be 29.5%, which was an increase from last year’s 26.6%.

Regarding the network related expenses, it is true that using more number of networks would incur more expenses from the operating side of the network. However, we will continue to improve the operation efficiency so that we could reduce the cost per unit basis and such efforts paid off last year and we expect such results to surface also this year going forward.

[Translated]. The following question will be given by Mr. Mark Schiffer from Morgan Stanley. Please go ahead sir.

Yes. Thank you very much for the call. Good morning. Two questions please, more strategic. First, when you launch your HSDPA service during 2006, can you talk about how you’ll differentiate it from the service you're already offering on EV-DO? Second, with regards to your overseas investment, can you please discuss how much of the Company’s capital you feel comfortable having invested overseas? Is it 5%, 25%, somewhere in between? What order of magnitude should shareholders expect SK Telecom to have invested overseas in the next one to two years? Thank you.

[Translated]. You asked a question about HSDPA and how it differentiates from the existing EV-DO services. First of all, HSDPA has broadband-like properties, so we will maximize that characteristic to push forward the visual communication using the handsets. So the visual concept will be emphasized, and also the web-like user interface will be utilized for services such as Melon and Cyworld, integrating basically the wired and fixed nodes of communications there together.

And also the global warming services will be [asserted] fully there as well, and using the smart chip technology, we could offer financial and shopping and entertainment experiences, offering multi-functional, convenient experience for the users.

And regarding your question about the global investment, I believe that it’s only natural that you would like to know a general range of the investment, if possible, coming from the Company. But because the target market might vary significantly in terms of the competitive landscape, the regulations, potential partners, contract terms and the valuation methodology, etc, it is quite difficult for us to share with you just a number or a simple range. So I ask for your understanding.

However, I could assure you that we will do our best to maintain a balance between the proper capital structure for the Company and shareholder return policy, which is well balanced with the rest of the global business investment.

Thank you.

[Translated]. The next question will be given by Mr. Adam [Erlinson] from Bear Stearns. Please go ahead sir.

Thank you very much. I have a question on Helio and some of the other non-operating expenses and [other] gains. First of all, for Helio, can you tell us what the loss was for Q4 in terms of the associate contribution there? And also if you could give us an update on the targeted start-up marketing costs, and if you have it, also a full-year estimate of what sort of losses or earnings -- probably losses we can be expecting from that JV?

And the second question is on HSDPA and your tax treatments. Will you be receiving any favorable tax treatments as a result of the investment in HSDPA? Thanks very much.

[Translated]. To answer your question regarding Helio. As you are well aware, we launched that service as of October last year, and only from this spring we expect to significantly acquire subscribers. Therefore, last year’s numbers will not be that meaningful to share with you today, and this year most of the major carriers in the U.S. have -- are expected to complete their EV-DO rollout. Therefore, the significant competitive edge for Helio, which is wireless HMA capabilities, will be able to be offered with a nationwide coverage possibly.

However, regarding this year’s coming marketing expenses and profitability targets, currently the Helio’s Board is under discussion to decide on those figures. So I will only be able to communicate those figures once those numbers are confirmed, and only when it’s possible to share with you.

And you asked whether we have any special tax incentive or benefits because of the investments on HSDPA. It is true that there are some laws allowing for certain tax breaks on investment into certain technologies. However, we do need to review whether HSDPA would apply for such a category.

Thank you.

[Translated]. The following question will be given by Mr. Andrew Hoskins from HSBC. Please go ahead sir.

Hello, two questions please. Firstly, continuing on the subject of tax. It appeared that you had an unusually low tax rate in the fourth quarter, and I find, completely misreading your income statement, something like 21%. Can you comment on the reasons for that and give us, if possible, some guidance about a likely tax rate for 2006? And secondly, very simply, just a clarification. Could you remind me what your target was for wireless internet revenues as a percentage of the total? Thank you.

[Translated]. Well, it is true that in the year 2005 the executive tax rate was reduced compared to the previous year, from the previous year’s 27% down to 25%, and for the Q4 effective tax rate which was reflected. I think it was just a matter of timing, reflecting certain tax items. Going forward into 2006, we expect the effective tax rate to be between 27 and 28%.

And to clarify your second question, in year 2005 our original annual guidance for the proportion of wireless internet out of the total revenue was 24%.

[Translated]. The following question will be given by Mr. [Julius Kim] from JP Morgan. Please go ahead sir.

[Translated]. Yes sir, I have two questions. First of all, a related question to the handset subsidy issue. It seems that at the National Assembly in Korea the most likely scenarios that are being discussed is offering certain handset subsidies to those subscribers with more than two year past subscription history. If such a proposal is passed, I'm wondering whether such an added marketing burden would be reflected in terms of the provisioning item under the P&L for SKT? That’s my first question.

And the second question has to do with terrestrial DMB. You said that although it was launched recently, because of the less number of channels and less sufficient coverage, that the satellite DMB is still at an advantage. However, even terrestrial DMB side has recently come out to talk about installing more number of [that fillers] it has in the coverage, etc, and more than anything it is free of charge.

Therefore, you say that there are differentiation in terms of coverage and content, but it seemed that such a differentiation is not that significant. And earlier in other communications SKT has also said that, depending on the market situation, you would not write off entering into terrestrial DMB yourself as well. But if you do decide to do that, how would that cannibalize or not cannibalize the satellite DMB side as well? And would you consider possibly lowering the monthly fee for satellite DMB?

[Translated]. Well, first question regarding the handset subsidy. Even if such subsidy is allowed by the Government, it’s not an item that we would treat using provisioning. We would reflect it at each time of expenditure as cost and expenses.

And there seems to be a lot of concern regarding the future of satellite DMB. But I could tell you that for now the coverage and content in area -- in such areas we are definitely at an advantage. But in the long run we expect the satellite and terrestrial DMBs to coexist, and ultimately it will grow the entire pie of DMB market. In that market scheme, satellite DMB will serve as a premium service provider type of mechanism.

So to mid- to long-term perspective? Well, we will continue to communicate with you, and update you on the contents and handset situation for the satellite DMB as we go. However, for now we have no immediate plans to reduce the monthly fees in order to stabilize the business as a whole.

[Translated]. The following question will be given by Mr. Mitchell Kim from Morgan Stanley. Please go ahead sir.

Good morning. I still have two questions. The first question is marketing again. Marketing cost was about 17.5% this year. However, if you look at the fact that your revenue growth was only about 5%, it’s still a considerable amount. And I think in third quarter, Senior Kim, you mentioned that you are looking to restructure the sales channel. And I was wondering if you could elaborate whether in that 17.5% for ’06, how that -- whether you have incorporated any cost savings from potentially restructuring the sales channel?

And if you could perhaps elaborate on your long-term process, so how you restructure the sales channel to reduce the marketing cost further in the long-term future?

Second question is on overseas, a very quick one. You said that in Vietnam you care investing KRW250m. What do you get for it? Is there -- Can you get equity stake in it, or is it purely some sort of profit sharing arrangement that you have? That’s it.

[Translated]. First regarding the retail channel related to restructuring and the cost saving. I don’t think that the cost saving should be the only goal or target for any retailer restructuring efforts, rather it should be to maximize the efficiency of such channels. And considering the marketing environment changes, we will -- we have continued to improve the structure and the operational efficiency of these retail channels in the past, and such efforts will continue in the future as well.

So we don’t expect any radical restructuring per se, but we will focus on maximizing efficiency and at the same time cost efficiency will be improved as well.

Yes, and the Vietnamese global business area. As I told you, our overall investment amount, which is a lot, it is about $280m, and that is to be expended in two portions. In year 2006 we are to expend about $100m, and another $180m in 2007. By making such an investment, our equity share in SLD will increase for SKT, up to equity ownership of 85%, therefore strengthening the management rights. And naturally it will strengthen our position in the current BCC arrangement as well.

[Translated]. The following question will be given by Mr. [Chu Khan Lee] from [Pensions] Securities. Please go ahead sir.

[Translated]. My question has to do with the opening of the wireless network from SKT to other operators. You talked about that in October last year, and I would like to know how much progress has been made in terms of sharing and opening up wireless network? And in this process, I'm sure certain types of service know-how can be shared to other competitors as well, and so far it seems SKT is at a lead nevertheless. But how is the progress so far?

[Translated]. Recently regarding the wireless internet network opening, there are some actions that are currently being implemented, such as offering the access -- more mutual access to the users of the handsets by allowing hotkeys so that the users can enter into the portal side -- site of their choice from the initial menu on their screens.

Therefore, such a capability would be provided as a default starting from September 2006 on all terminals. And in this process we are currently negotiating and discussing things with [Town] and [Neighbor] and such wired internet portal providers and other category [killers], so that we could provide a win-win solution to all parties. And I believe that such action going forward could also prove to be a windfall for our wireless internet revenue as a whole as well.

And the second question had to do with the SKT’s alliance with [Tokomo], and we are not at all worried about this prospect, because, of course, they will have some synergy effect in terms of global competitiveness and in terms of sharing roaming and content sharing, etc. But we’re not too concerned because we have prepared for globalization for many years, and we have begun this process many years ago. So we are well prepared.

And even in terms of content and also being able to integrate between wired and wireless capabilities, we are the world’s best to be. So we are quite confident about our position in this situation.

[Translated]. The following question will be given by Mr. [Chu En Cho] from Hanwha Securities. Please go ahead sir.

[Translated]. Yes, I have two questions. First of all, what are the series of policy related risks we could possibly expect for 2006? And the second question, starting from the end of last year, we understand that Fair Trade Commission started investigating into SMS related tariffs. So what's the progress on that so far, and if some penalty is placed on SKT which could possibly impact the value of the Company?

[Translated]. Well, this year marks the tenth year since the mobile telephony market was truly created in Korea. And I believe that already we are experiencing an effectively full competition based system in Korea. Therefore, we do not expect any asymmetric policies to be especially placed on SKT going forward. The only policy related risks or issues that we could look forward to would be the often discussed -- the handset subsidy issues or the interconnection fee issues, or the portability between 2G and 3G network possibly.

There has been no final decisions made from the FTC side on the SMS related investigation. However, we do not have any collusion of practices in the mobile telephony market in Korea. And therefore I expect the Fair Trade Commission to make the right decision, based on the facts.

[Translated]. The following question will be given by Mr. [Hon Che Kim] from [Chesson] Securities. Please go ahead sir.

[Translated]. I have two questions. First of all, in my personal opinion, if the terrestrial DMB is fully activated in the market, it is inevitably going to affect the satellite DMB revenue for the existing satellite businesses. So even in that situation I'm wondering whether SKT plans to go ahead with the DMB business? And the second question, the LDT recently has worked on porting in a lot of SKT’s customers to improve their ARPU. And I'm wondering whether SKT has any one-off or special marketing plans to win back such subscribers?

[Translated]. I believe your main concern is regarding the terrestrial DMB possibly cannibalizing the wireless internet business of ours as well. We are certainly and very carefully watching the trends of subscribers on that regard -- in that regard. And so far we have not identified any cannibalization effects, perhaps because it is only dealing with the earlier adopters and premium customers. Whether that is then going to be an ongoing trend, we should certainly observe the situation going forward.

And since we do not have any meaningful figures from the terrestrial DMB yet, we could only refer to the satellite DMB figures. And if you look at it from that regard, the limit -- the effect on the wireless internet seems to be quite limited. And also the wireless internet and contents market is on the rise in terms of its overall size, and therefore we don’t have too much concern about that prospect.

And regarding the NMP situation, all the port [end user] subscribers recently about 25% of the customers have of our new port in, if it would get them. There are those people from other telephones but those are the people who left SKT in the past, and have come back to SKT mostly. And we do not have any specific promotion plans targeting specific [teleco] in the market, to win back such subscribers currently.

And for your reference, mainly most of those are newly ported [end] subscribers are those people in their 20s and 30s, who have strong need for wireless internet. And also they tend to subscribe to a lot of differentiated wireless internet services that we offer as well. So their ARPU seems to be higher than the average ARPU of SKT as well.

[Translated]. The following question will be given by Mr. Matt Evans from CLSA. Please go ahead sir.

Thank you. First question is on interconnection. Could you clarify that in your guidance for the EBITDA for 2006, there was an assumption in there interconnection revenues per minute will fall by less than internet -- interconnection costs per minute. In other words that the interconnection ratio will become more symmetrical.

And secondly, could you tell us what the breakeven point for TU Media would be in terms of number of subscribers? Thanks.

[Translated]. I don’t think that it would be appropriate for me to discuss the undecided interconnection fee issue at this point. We will communicate that with you as soon as the Government makes firm decisions on that.

And also on TU Media’s breakeven point, in terms of the subscribers we are looking at around 1.5 to 2m subscribers to be the breakeven point. However, we do have to consider other factors such as elements that pertain to the revenue and also cost issues. So we will closely communicate an update to you on the breakeven point and other situations regarding TU Media.

Thank you.

[Translated]. The last question will be given by Mr. [Gill Fon] from UBS. Please go ahead sir.

First question relates to your domestic associates. I understand SKT Communications, you cannot list that company for years. It’s a small merger you did at the end of last year. Is there any way of speeding up that process? And what is your plans for listing any of your domestic associates?

The second, final question relates to LG Telecom. In 2004 a lot of people believed their strength was due to MMT or asymmetric regulation. Last period it seems a lot of marketing innovation was behind that, in particular the kiosk marketing type formed a launch. Could you explain whether that’s replicable? Whether you can replicate something like that, to lessen that competitive strength that they've introduced into the market over the past year or so on that? Thank you.

[Translated]. Let me answer your question about the SK Communications related IPO issue. Since all subsidiaries, or associated companies, have different situations, strategies and values, it would be difficult for me to tell you a very unilateral rule that we have about listing our subsidiaries. But I could tell you in the short term we have no immediate plan to list any of our subsidiaries.

Of course, with regards to SK Communications, in the mid- to long run we are looking at various strategies for the company which include a possible review of an IPO. But currently we have no immediate plan to do so.

I believe that you were asking a question about the on-the-street, the selling [part] that LG is setting up throughout the market. However, I believe that at [Telco] the situation could vary, therefore our retail channel strategies could vary as well. Now we currently have very competitive, dedicated retail channels currently in operation, and we will continue to utilize those channels to differentiate our services, and by offering or discovering new retail channels as well we will deal with the market situation.

[Translated]. You will now hear a closing remark from President Kim Cheng Keun.

[Translated]. Thank you for taking part in this conference call. Your valuable questions and interest will help us achieve the management of our Company. On your questions and comments made throughout the conference call lead me to believe that your main concerns are regarding subsidy issues and the regulation issues. And you were basically advising us to improve the operational efficiency, etc. And regarding the global businesses, that your concern was that we should be more prudent, that we should balance between the global strategy versus the shareholder return.

And I will bear in mind all those concerns and interest coming from the investors, so that we could run and manage the Company in a very shareholder centric manner.

SK Telecom will continue to maintain its market leadership while strengthening its basis for new growth, and will do its best to ultimately maximize both the shareholder and Company value. I once again would like to ask you for your support, co-operation and advice, so that the year 2006 can be another corner[stone] for new leads for SK Telecom.

This concludes the CEO conference call fourth quarter 2005.