SK Telecom Co Ltd (SKM) 2007 Q1 法說會逐字稿

(interpreted) Good afternoon. Today's conference call will consist of the Q1 2007 earnings presentation by SKT CFO Mr. Ha Sung Min, followed by a Q&A session. The conference call will last about 1.5 hours with consecutive interpretation. Let me remind you that all the forward-looking statements are subject to change, depending on the macroeconomic and market situations.

Here is Mr. Ha Sung Min.

(interpreted) Good afternoon. My name is Ha Sung Min, the CFO of SK Telecom. Thank you for taking part in today's earnings conference call for Q1 2007, despite your busy schedule.

Let me begin with the earnings highlights for the first quarter. The revenue for Q1 grew 6.7% year-on-year to KRW2.7117 trillion, with increased addition of new subscribers despite the wireless Internet tariff reduction since January. On a quarter-on-quarter comparison, the revenue edged down slightly by 1.7% due to the less number of working days during the period.

The wireless Internet revenue went up 2.1% compared to the same period previous year to KRW676.9 billion, making its share from the total revenue excluding interconnection fees 27.6%. The fact that such healthy growth momentum was maintained is quite meaningful. This was achieved despite the 30% tariff reduction on the wireless Internet charges through increased number of fixed-price plan subscribers, strengthened new service developments, and a realigned wireless portal business.

The marketing expense for Q1 was KRW586.6 billion, which was a 7.7% decrease quarter-on-quarter but a 33.3% increase year-on-year, making its ratio of the revenue 21.6%. The year-on-year increase was mainly attributed by the fact that the handset subsidy [relaxation] took place from the end of March last year, not yet affecting the '06 Q1 figure in a major way. However, the '07 Q1 figures reflected this increased handset subsidy.

It is also noteworthy that SKT pursued efficient marketing expense management by focusing on new subscribers during the first quarter to address the market competition. As the result, SKT confirmed its market leadership, while spending less marketing expense compared to the previous quarter.

The operating income increased 22.8% quarter-on-quarter and decreased 0.9% year-on-year to KRW662 billion through increased revenue and efficient expense management. The net income jumped 41.9% quarter-on-quarter and 17.5% year-on-year to KRW396.3 billion. The [narrowing] equity method losses compared to the previous quarter, together with the one-off severance scheme change which took place in Q1 2006, contributed to such increase. The EBITDA went up 2.5% quarter-on-quarter and 2.3% year-on-year to KRW1.0543 trillion.

That was an overview of the earnings highlights. Let me now move on to other matters of interest.

Firstly, I would like to share with you our market strategy going forward.

The year 2007 is expected to be a year of volatile competitive landscapes throughout the telecommunications industry, with changes such as the HSDPA SBSM commercialization and the allowance of bundled products, to name a few. Against such backdrop we have decided to set our market share target at 50.5% until the year end to ensure mid to long-term market leadership and sustainable growth platforms.

We believe that stronger market leadership refers to the strengthening of the subscriber base through the best offerings of values and benefits to all subscribers, while ensuring profitability through efficient expense management. Under such principles, we plan to lead the market competition by pursuing the dual network strategy, to expand the choices and satisfaction of the consumers at large. On one hand, we will fully leverage the existing CDMA network, which has already been proven for excellence and cost efficiency. On the other hand, we plan to bring out new services supported by the next-generation technologies that are specific to WCDMA.

Rather than forcing accelerated migration, SK Telecom plans to pursue natural migration between networks to reflect the customer's willingness for change to ensure profitability through efficient expense allocation and mid to long-term revenue growth.

Since the world's first HSDPA commercialization in May 2006, SK Telecom has completed the nationwide HSDPA network rollout at the end of March this year. The SBSM handsets were launched in the market after thorough preparation for perfect quality service provision. We plan to acquire 1.5 million HSDPA subscribers by the year end through the expanded lineup and price competitiveness of handsets and differentiated service development, among others.

To that end, we plan to launch more sophisticated services, such as visual services like video telephony, Internet services with full browsers, global roaming services, and convenient services using USIM card functions. We will offer services mainly around the WIPI-enabled handset lineup, which will be equipped to provide such advanced functions flawlessly.

Let me now move on to the global business. SK Telecom in Vietnam has reported 1.83 million subscribers as of the end of March, and is continuing its growth momentum through diverse price plan offerings and effective marketing strategies since 2006. Also, we are engaged in a negotiation with our Vietnamese partner to improve the contract terms and conditions, with the aim of establishing a sound business trajectory for the mid to long-term time horizon. We will communicate the results of the negotiations as they become available.

With regards to China business, the Chinese Premier has expressed his satisfaction to our technological excellence in his recent visit to SKT. Building such a friendly and cooperative relationship with the Chinese government will bode well for our full-fledged China initiatives in the future.

Lastly, I would like to comment on the treasury share buyback, which was promised in the beginning of the year. We are reviewing various measures for the buyback to reflect the [exhausted] foreign ownership limits, the market environment, and the stock price of SKT in order to maximize the shareholder value.

We are confident that we can continue to grow in this changing environment, just as we have helped develop the Korean mobile telecommunications industry into one of the most advanced markets in the world, based on our accumulated technological capabilities. I ask for your continued interest and support in the future as well.

We will now begin the Q&A session. Please go ahead with questions.

(interpreted) (OPERATOR INSTRUCTIONS). (inaudible), [Hong Kong Investment Securities].

(interpreted) I have the following three questions. First question has to do with your plans or strategies regarding capitalization into other corporate entities. Recently we heard in the grapevine that SKT has taken out about KRW1 trillion worth of credit limit through a global financial institution. So, whether you are interested in (inaudible) Telecom per se, or whether it has to do with China Unicom, I'm wondering whether SKT's strategy regarding capitalization into a third corporate entity has been changed.

My second question has to do with the non-WIPI-enabled phones that have been introduced by your competitors in the market. What is your view on the recent developments, and what measures do you have in place in order to deal with such recent developments?

And the third question has to do with the recent rapid drop in the retention commission of subscribers of SKT. Is this a one-off phenomenon, or is this a continuing trend, in your opinion?

(interpreted) Let me answer your first question regarding the recent report in the newspapers. We currently already have had quite a bit of credit lines in the Won-denominated credit through the commercial banks of Korea already. And on top of that, this time around, we have secured an additional credit line in foreign currency. But the main purpose for such action was to ensure financial stability, rather than anything else. And if you look at the purpose of this credit line, according to our covenants with the financial institution, we are only able to utilize the fund in short-term operations purposes. And we are not allowed to use the fund for the investment purposes. And looking at the exchange rate climate in recent years -- or recent months, that is, in a way, borrowing foreign currency might be cheaper than the Won-denominated loans. That is why we decided to diversify.

Regarding your second question about the non-WIPI-enabled phones introduced by our competitors, let me remind you that our strategy going forward regarding HSDPA services is unchanged, basically, in that we are planning to target premium high specification, high functionality types of handsets to provide better services, and in order to maximize revenue potential as well. So, therefore, we are mainly, for the moment, going to concentrate mainly around the WIPI-enabled phones for the sophisticated and convergence-oriented services. And in the short-term, we will plan to expand the lineup of such WIPI-enabled phones.

However, (inaudible) we see that the competitors are coming out with low-cost phones, to deal with that initially, we will try to expand or strengthen our existing CDMA handsets to deal with it. But if needs arise in the future, we are considering as an option possibly introducing a non-WIPI phone. However, of course, there has to be strong [logic] behind it, with strong demand coming from our subscribers.

To address your third question regarding the recent drop in the retention commissions category of our earnings, if you look at the market environment, during the first quarter this year the market for the new subscribers in the 010 prefix market has increased quite a bit, during which time our handset change [of] subscribers number has dropped in relation to that. And also internally, within SKT, we have changed some of the membership points and other structures for existing customers as well, which also led to slight reductions in the changing phone-type of subscribers.

So, as you can see, the recent trend is that the new subscriber market and [MMP] market is on the rise, whereas the handset change up customer subscriber need is dropping. But we believe that beyond second half of this year, handset change up subscribers can possibly increase again, so we are preparing for all those options.

(interpreted) (inaudible), (inaudible) Securities.

Good afternoon. My question relates to TU Media. I guess three years have passed since the launch of DMB. And I believe the original plans called for the investment to turn profitable by 2006. Obviously, that did not happen. And it appears that the investment in HELIO is kind of heading in that direction as well. I don't want to put management on the spot here, but I'm just -- I would just want to better understand the decision and, more specifically, the risk assessment process for such noncore investments. And will the Company consider altering this process going forward? And if you can just add what you plan to do with TU Media and HELIO going forward, I would appreciate it.

(interpreted) Let me answer the question. As you are well aware, when we first vied for the license to run the business in the Satellite DMB business through TU Media, our initial business proposal included such a part as you mentioned. However, after the launching of the actual business, there has been a lot of market changes, including the retransmission issues on the terrestrial -- the TV signals. And we aren't managing the business according to the changing environment.

And as you are well aware, back in '06, also specifically in November last year, TU Media went through a tariff reduction, and they also pursued diversification of channels. And they are introducing various types of premium data services and content differentiating types of initiatives. Therefore, they are pursuing a true sense of the interactive TV business.

And globally, I believe that mobile TV market is increasing as a whole. And we believe that such mobile TV activities can serve to be the center of lifestyle change for consumers at large. And according to our current plan, by year '08 we expect TU Media business to start generating net profit. And starting from year 2010, on an accumulated basis, we believe we could reach the breakeven point as well.

And to answer your question regarding HELIO, during the [first] quarter of this year we are anticipating the exceeding of the subscriber base beyond about 100,000. And currently those subscribers that we already do have in the subscriber base are pretty high ARPU subscribers as well, higher than $100 in terms of [front] paid subscription basis. And considering the fact that it hasn't even been one year -- actually, it's been only about nine months since we began a full-fledged marketing initiative. So considering that short period of time, I believe that our success so far has been quite encouraging. And we believe that by year '09 or year 2010, our performances are bound to improve even further.

And plus, if I may add a little bit regarding HELIO and TU Media-related businesses, we believe that these are types of business initiatives that could significantly reinforce our core business. So we believe that they are integral parts of our core business indeed. So when we make investment decisions such as those, we go through [an] internal assessment process which is quite stringent to come up with the right answers.

(interpreted) (inaudible), Morgan Stanley.

Thank you for the opportunity. My first question is related to your marketing spending. Can you provide us with more color on what SKT believes was the key success factors in being able to gain record subscribers for the quarter, yet being able to contain a marketing cost to below 22 percentage points of revenue. (inaudible) because given the fact that (inaudible) KTF yesterday showed a very high marketing spending. And I'm just curious how SKT believes it was able to do this in contrast. And related to this, I was just curious whether SKT's exclusive sourcing contract with Motorola had a part in it.

My second question is related actually to the tax credit for WCDMA. In contrast to KTF, the effective tax rate for the first quarter came in at 30%. And I'm actually curious whether SKT is able to -- is [applicable] for these tax credits. And my last question is actually on the CapEx outlook. If I recall, with the WCDMA investments nearly complete, can we expect CapEx levels to go down in 2008, 2009? If you can provide us with a rough estimate of how we can actually project our CapEx figures, that would be sincerely appreciated. Thank you.

(interpreted) To address your question regarding marketing expenses, I believe that I briefly mentioned something about that by answering the first question earlier. But there has been a reduction of number of subscribers changing phones during the first quarter. And we have changed some of our retention scheme for the membership program. Therefore, overall retention commission has come down quite a bit, while the advertisement cost was brought down quite a bit as well. I believe that it was possible due to our efficient management of marketing expenses, ultimately leading to the reduction in the overall acquisition cost per subscriber that is required. And I believe that that was possible because of the current market leadership of SK Telecom.

I don't think that I am in a position to mention anything about KTF's marketing expenses. But, to also elaborate on the Motorola phone related comment that you made, it is true that because Motorola provided a wide range of low-priced point handsets for our services, I believe that we did receive quite a bit of support there as well.

Regarding the effective tax rate, I believe that per company it could differ depending on the profit size of the company. I believe that you are mainly referring to the temporary investment-related tax reduction item that is available. As a matter of fact, on the WCDMA investment that is being made, we are already receiving such tax deductions. And ultimately it has to do with the overall profit size between the players. So, according to our estimates, we believe that the same effective tax rate of last year, which was 29%, will continue to apply this year.

If I may address the CapEx-related question, to give you the conclusion first, beyond year 2008, our CapEx will gradually come down, because mainly WCDMA investment will be pretty much concluded within this year. And as mentioned during the annual guidance-giving conference call earlier, we are looking at about KRW1.55 trillion in terms of CapEx for this year. And of course, regarding WCDMA-related expenditures, depending on the service development direction, and the number of subscribers, and the overall usage in general, there might be some changes in the detailed numbers of the expenditures for WCDMA. But it will be a very minor change at the end of the day.

(interpreted) Jong-su Kim, NH Investment Securities.

(interpreted) Looking at the first quarter new acquisition cost per subscriber, according to my calculation, it comes out to be around KRW170,000 per subscriber. Compared to the Q4 figure of 2006, it's a drop by about 10%. And compared to KTF's announced acquisition cost, it's actually 20% lower. So could you share with us the main reasons why, on a quarter-on-quarter basis, it came down so much on the part of SKT compared to KTF? Was it because of the lower price point for the handsets available? And also, going into the future, as you start increasing the number of subscribers for the 3G services, can we expect higher acquisition cost per subscriber once again?

The second question has to do with the soon-to-come holding company structure for the SK group as a whole. I'm sure there will be positive points as well as negative points for SKT with such holding company structure change, so what is your view on those two categories? And also, I believe that you will have to deal with the resolving of the [SK/CNC] related equity holding. So what is your plan for the shares of SK/CNC going forward?

(interpreted) To address your marketing expense-related question, I partially mentioned that in the earlier answer. But mainly, the initial commissions for these subscribers have gone up slightly during the quarter, but the increase was quite minimal. And seasonally speaking, this is a season for graduations and entering into new schools; therefore, there was an added demand there as well.

During the first quarter, there were many changes such as HSDPA, SBSM commercialization, and also the factor around the bundling services as well. So, in order to prepare for such upcoming changes, we concentrated our marketing efforts on the 010 prefix new acquisition markets. Because of that strategy, our initial commission has gone up, while our retention commission has come down. So overall, even though new subscribers are among the number, those people who are eligible for a subsidy have actually been reduced as well. So, on top of that, we have managed efficiently the cost allocation. So that's why we were able to compensate for the slight increase from the initial commission as well.

I'm sure you are curious about our marketing expenses trend beyond Q1. And as you could expect, we believe that there is room for increase in the market -- marketing expenses for Q2 and Q3 compared to the current period. So there is always that implicit possibility there. As you are well aware, SKT has to effectively deal with the competition in the HSDPA area, and also to deal with the low-cost marketing area as well. So, although we will focus on efficient management of cost allocation, the competition will intensify indeed.

Regarding your question about the holding company structure change, basically we feel that the overall conversion of the SK group into a holding company structure will have very little direct or indirect impact on SK Telecom. If you look at the overall holding company structure, theoretically and actually, I believe that everybody agrees that such conversion to a holding company structure will add value to corporate governance for the entire group. So I believe that SKT as well will become more transparent in the process. And the only outstanding issue regarding the holding company structure would be to deal with the cost shareholding issues regarding the subsidiaries or the granddaughter companies of SKT. So we plan to abide by the time allowed by the legal structures. So we will review various options, and we will deal with issues in very uniformly acceptable, market acceptable-type of options.

(interpreted) Evan Erlanson, Bear Stearns.

My first question is on HELIO. Looking at the balance sheet of the Company and the cash flow situation, it appears that there will be a need of additional funding within the next 12 months or so. Do you have any plans at the moment to recapitalize HELIO? And if so, approximately how much, and what will the timing be?

Secondly, on the Unicom stake, or the Unicom convertible, which will be coming up in a couple of years. If we look at the Chinese market, and the pretty high likelihood that there is going to be restructuring in which the CDMA network could potentially be sold to, perhaps, China Telecom or another operator in the next year or so, in that scenario, what would SK Telecom's policy be toward its eventual Unicom share holding, let's say, if Unicom no longer held the CDMA network or CDMA subscribers? Would they in fact stay in the market and still cooperate with Unicom? Or is the object there really to be involved in CDMA in China? Thanks.

(interpreted) Let me answer your question regarding HELIO. During the first half of this year, as I mentioned earlier, the number of subscribers is expected to exceed 100,000. As you are well aware, securing more number of subscribers in a telecom business is quite critical. Therefore, it requires quite a bit of marketing activities, which in turn would require additional funding as well. So, we are actually reviewing the possibilities of such recapitalization. And we are looking at various options in terms of the timing and the size of the recapitalization. However, we have not come to any concrete decisions yet. So as soon as we have them available, we will communicate the information with the market. But the only caveat in going for such recapitalization would be that our share holding with our partner EarthLink would have to remain the same during the recapitalization process.

Regarding China Unicom-related comments, I believe that there have been a lot of rumors around the future upcoming changes regarding the governance issuance of 3G licenses, as well as restructuring. And I understand that China Telecom-related [SDMA] rumors have been out there as well. But so far we have not been able to confirm anything for sure. And so, against that backdrop, we are still holding the convertible bonds of China Unicom.

Basically, our basic target in entering into China through such endeavors is to conduct telecommunications business in China at the end of the day. We are looking at ways to do better telecommunications operations in China, creating synergy between China Unicom's values and SKT's values as well. And therefore, whether we will conduct conversion of the [CBs] in the future, whether we would start accumulating more equity in the company -- on those matters, I don't think that we are in a position to discuss any final details as of yet. I believe that we have to still wait and see what develops further in the market.

Of course if the market changes to a more positive environment for SKT, we might decide to do other actions, but this is too early for us to tell. And although we are probably a very well-known, proven, excellent CDMA operator in the world, at the same time we feel that we have the necessary capabilities to operate the GSM network as well, if necessary. So, whether it is CDMA or GSM in the China business is not the critical deciding factor for us entering business there.

(interpreted) (inaudible) Lee, (inaudible) Securities.

(interpreted) My first question has to do with the market share. Although it is a very slight increase, you have announced your market share target to be slightly higher than before for the year-end. And I believe that during the first quarter, the net addition has increased in the market as a total by about 900,000. I believe that is why, perhaps, you increased the market share target. Is it your view that beyond Q2, although it may not be as large as 900,000, do you think that there will be similar robust growth in new additions in the market?

And during the first quarter, on your newly acquired subscribers, is there any special profile characteristics of the subscribers that you could share with us? And also, in the month of March your trend ratio was 3.2%, which was higher than usual, in my opinion. So, is there a specific reason why? And what is your expectation about the future trend on the trend rate?

And another unrelated question is that if you assume that the competition will truly intensify in the market in the near future, how far additionally do you expect the marketing cost or the acquisition cost per subscriber to increase further? Currently I believe that in Q4 last year it was 190,000; in Q1 it was 170,000 per subscriber. But how far can we look at? Could it go as high as 250 to 300,000 per subscriber going forward?

(interpreted) We announced earlier in the opening statement that for the entire year 2007, our market share objective is 50.5%. And this figure was not something that we artificially came up with through some (inaudible) calculation, per se. But rather, after running the business during the first quarter this year, we came to the conclusion that 50.5% would be about the right level to still maintain the leadership in the market.

The reasons are as following. It is true that our market share has come down in recent months, and we came to realize that the lower our market share became, the more intensifying the market competition became as well. Therefore, in turn, it added more on the marketing cost as well. So it became a vicious cycle. So we felt that maintaining (inaudible) certain level of market share in the market for SKT would actually help bring down the intensifying competition in the market for everybody.

Plus, as you are well aware, in the mobile telephony market, market share could be a very significant source of profitability. And also, as we approach a new changing environment with more bundling services provided in the market, we're doing such competition, those with higher market share would have better negotiating positions as well. And also, when we begin to offer new services, new businesses in the market, I'm sure with bigger market share, we would have even more upside potential as well. So for those reasons we came out with the target of 50.5%.

To address your questions regarding net addition as well as trend rates, of course, net addition increase is quite dependent upon the market changes, including the WCDMA business development going forward. So although there can be such volatility, we believe that overall, the net addition is bound to decrease slightly going forward. And I believe that regarding a churn rate increase, yes it is true that during the period the MMP market became even bigger. That's perhaps one reason to contribute to the increasing trend rate. And also, during the month of March, SKT has applied more involuntary suspension of services for the less quality subscribers. So that added to such monthly spike in the churn rate as well.

You also asked about the profile of the new subscribers for Q1. Because some of them have churned out of other competitors and have joined SKT, or some have even canceled our existing subscription to get into another program, it is quite difficult to give you a direct or a detailed breakdown. However, on an overall basis, if you look at the profile of the new subscribers and their ARPU, they tend to be slightly higher than the ARPU of average existing subscribers.

Regarding the initial commission, it really has to do with the market environment and the competition in the market. And regarding WCDMA, each competitor has a separate policy on its marketing initiatives. So, it will always depend on the situation. So, I apologize, but I cannot give you an exact target for the acquisition cost.

(interpreted) (inaudible), Lehman Brothers.

(interpreted) I have three large sets of questions. The first question has to do with the market share target of 50.5%. What risk factors can you cite that could possibly erode the market share going forward? Do you suppose that the fact that you're losing the premium value of 011 with the introduction of the 010 prefix numbers -- would that actually threaten your market share? Or do you think that it's the bundling products which are scheduled to be introduced in the market during the second half which is a bigger threat?

My second broad question has to do with the bundling products. According to KTF, they are planning to not only come up with bundling products with KT, but also with (inaudible) Telecom as well. So for SKT, how do you suppose that the bundling products to be introduced will impact your market share going forward? And how are you trying to deal with such changes?

The third broad question has to do with the marketing expenses. You said that it is bound to increase compared to the first quarter this year. So I believe it has a lot to do with the cost of the handsets as well as the amount of subsidies. So, compared to Q1 this year, for Q2 and Q3, how much additional subsidy can we anticipate?

And also, relatedly, KTF and LGT, I believe, is compensating for such added marketing expenses by utilizing the margin coming from the vendors of handsets. I'm wondering how SKT is managing the vendor promotion fees, and how it is affecting your marketing expenses in general.

(interpreted) Let me address your second question first regarding the bundling services. Of course SKT is preparing for such options going forward as well. We believe that one of the most critical factors in such a scheme change would be the interruption of diverse price plans, so we are preparing that. And we are also looking at possibilities for alliance with various fixed line players, including (inaudible) Telecom and other MSOs as well. So we do have plans for launching such products. And that is why we discussed the importance of market share early on. As you are well aware, SKT currently holds over 20 million subscriber base, and our subscribers tend to have higher loyalty as well as higher ARPU compared to other competitors. So I think that in that way, our offering such bundling services will offer more real types of benefits for immediate customers as well. So I believe that we can be confident about maintaining the leadership in that market as well. But frankly speaking, in the near-term, I don't think that the bundling service will have that high of an impact on the business of this year.

I believe that achieving the 50.5% market share target will not be a big problem for our company, although there will be a lot of competitive landscape changes that could affect our market environment. But no matter what, we believe that that's quite an achievable target for us. Of course, if I must cite some risk factors nevertheless, there can be some WCDMA related issues beyond Q2 and Q3, if I may cite as a risk. However, I believe that even those risks can be quite manageable in the future.

Regarding our marketing expense increase possibly beyond Q2 and Q3, I've mentioned that that's a possibility in the earlier comments. And I believe, as you said, it has to do with either the handset price or the subsidy amount.

Regarding the handset price, I believe that there is a continuing trend of the downward change of the handset prices [itself]. So basically it is up to the subsidy amount, and it has to do with how we could deal with the market competition going forward. But as I mentioned before, we have no intention to lead or to worsen the vicious cycle of overheating market competition. Therefore, in terms of the subsidy as well, we plan to efficiently manage marketing cost going forward as well.

And you mentioned about other competitors' vendor margins regarding the handsets, and we are aware of such trends. But in the case of SKT, we might sometimes receive some qualitative support from these manufacturers by perhaps expediting the handset introduction in the market, for instance. But we are not receiving any such monetary compensation.

(interpreted) (inaudible), UBS.

Thank you very much for the opportunity. I just have two quick questions. Firstly, could you please remind us of your stance regarding overseas investments. I remember that in the last conference call you stated that you would focus on the areas that you're already in, U.S., Vietnam and China. Is this stance still intact? Also, could you please remind us of your stance regarding the market rumors about a potential acquisition of [Hanoi] Telecom? Thank you very much.

(interpreted) Let me address your first question regarding our global expansion plan. As we have maintained our position in the past, we will continue to maintain that position going forward as well. As you are well aware, we are looking closely at the Chinese market development regarding the China Unicom initiatives. And also in Vietnam, things are moving along as we have intended, so we are planning to focus on that business as is. And also regarding HELIO, we are doing our best to improve the profitability as soon as possible. So, as I mentioned before, let me reiterate that in the near future we have plans to only focus on these three areas.

And regarding your question about (inaudible) Telecom, as I have repeated over and over again in other conference calls, we have no intention to acquire (inaudible) Telecom.

(interpreted) (inaudible), Goldman Sachs.

Your ARPU in first quarter rose from what I can tell high monthly fees, which I presume is from converting subs to fixed pricing plans. If this trend continues, do you expect ARPU to hit a certain ceiling, or even see it deteriorate or -- would ARPU deteriorate from falling data usage, or data ARPU basically?

And also, please correct me if I'm wrong, but I think one reason why historically SKT has maintained a high retention commission was to lock in the so-called higher-quality subscribers. Are you now seeing that the cost benefit of pursuing that strategy is less valid, and that going forward, acquiring new subscribers on the fixed pricing plan could be more effective?

And my third question is on your plan to maintain dual networks. It doesn't seem that you've increased your CapEx guidance. But on that note, is there any condition in which SKT would consider building out CDMA Rev A? Thank you.

(interpreted) Let me address your third question first regarding the network rollout. As you are well aware, we have and we are investing in the HSDPA network. And there are a couple of factors to consider when deciding on the network strategy going forward.

First of all, we have to look at the price competitiveness of the handsets, and the customer acceptability of the new services when they are provided. So, because we do not have full confidence about those potentials for only the HSDPA network, that is why we feel the need to maintain efficiently the existing CDMA network as well. So, we hope to harmonize between the WCDMA and the existing CDMA networks, and provide seamless services for our subscribers. So that is our ultimate goal.

And regarding Revision A, of course, we are preparing in terms of the R&D capabilities for our ability to commercialize the technology if necessary. But for now we have no plans to invest in Revision A.

Regarding the retention matters on the high-ARPU subscribers, we have no stance change regarding the retention policy of our existing high-ARPU subscribers. Be it HSDPA or CDMA, I believe that our ultimate goal should be to maximize the customer satisfaction on our subscribers by providing the premium services that is unique to SK Telecom. By doing that, I believe that naturally ARPU is bound to increase. And therefore, fundamentally, we will be able to retain high-ARPU subscribers.

And I believe that I could address your first question by talking about the fixed-price plan customers and the following ARPU impact. I believe that by offering more services to customers with fixed-price plans when it comes to data, I believe that we could further enhance the data ARPU quite sufficiently. So that is our plan to expand the fixed-price plan subscribers.

(interpreted) (inaudible), Deutsche Bank.

Thank you for the opportunity. I have one question on net subscriber numbers. First-quarter net addition reached 462,000, which is 87% of full-year guidance. Does management view this as sustainable? And even in the case that this is not sustainable, I would assume the original guidance should be revised up. So, could management give an idea of how many subs SKT will have at the end of 2007? Also, if you have target subscriber numbers for HSDPA as well, could you please give us guidance on that? Thank you.

(interpreted) To address your question regarding net addition figures, it is true that during Q1 the number increase has been quite significant. So accordingly, we have flexibly dealt with it in terms of the policy change, and we have aggressively acquired new subscribers. But whether you -- if you are asking whether this trend is likely to continue until the year-end, perhaps not as rapid as the first quarter. Therefore, it is difficult for us to share with you a new net addition target going forward for the entire 2007. Because we have to deal with many different issues such as marketing expenses or WCDMA issues. So unfortunately, I will only be able to share the information with you during the second-quarter conference call. Regarding the HSDPA subscriber target number, as I mentioned in the opening remarks, we are targeting about 1.5 million subscribers.

(interpreted) (inaudible), (inaudible).

My question has been answered. Thank you.

(interpreted) (inaudible), [Summit].

My question is relating to HELIO. I wanted to know first of all whether you could give us some guidance as to how much additional funding will be required for that JV. And in the event that EarthLink does not want to invest into the JV, would you be prepared to invest more than your proportionate share? And also, maybe, would you be willing to maybe buy over the (inaudible) EarthLink?

(interpreted) As I mentioned earlier, we are looking at options for recapitalization in the near-term, which means the next one-year to three-year period. We are looking at various options right now, although we have not come to full conclusion on that. But we do not have a total plan for a long-term business view regarding how much recapitalization will be required. Of course, when we first set up the management plan, internally we reviewed all these options. But it's too early to comment on the specifics at the moment.

And regarding our investment vis-a-vis EarthLink, we only plan to maintain same equity holding as our partner. And let me also elaborate by saying that we are in close discussions with EarthLink regarding how best to approach this recapitalization, and we have come to some partial agreements as well. So as I mentioned, if there are any additional recaps, it will be according to the equity holding percentage.

(interpreted) (inaudible), Merrill Lynch.

Thank you for the opportunity. My questions are, first, regarding the roadmap for your CDMA business on 800 MHz, is it possible to still improve your service quality for CDMA users without upgrading the network to Rev A? And three years down the road, what kind of balance or mix would you like to have between CDMA and HSDPA, in terms of your subscribers, that you think is more suitable for SKT?

And related to that, my second question is, as you are transforming from a single-network operator to dual network, what level of medium to long-term EBITDA margin can we expect from SKT that would be sustainable?

And given the last questioner, I think, I would like to know for my last question, if you have to assume that Unicom would no longer exist and it would be taken over by the fixed-line operators, how might this affect the alliance? Do you have to negotiate with these companies again? Or is there a provision that the alliance still would be honored, even post-restructuring? Thank you very much.

(interpreted) You asked the first question regarding the Revision A upgrading possibly on the 800 MHz in order to improve the quality of the existing CDMA network. In our view, it is not going to be for quality enhancement, per se, but I believe it has to do with focusing on a different market. Mainly, the mid to low-speed data network will be the focus. We will be working on making the data network more efficient. So if we consider those options available, I'm sure that we could best utilize the existing 800 MHz as is.

And you also asked about our subscriber portfolio going forward. As we maintain the dual network in the future, we are paying close attention to the management in terms of the OpEx and CapEx on the dual networks. So gradually, we plan to reduce the investment on the existing CDMA network to minimize investment in that existing part of the business.

And you asked about three years down the line, what the ideal portfolio mix would be. However, it all depends on the market demand. And as I mentioned earlier, we plan to go at it at a natural migration pace. Therefore, it would be quite difficult for us to share with you exactly what percentage ratio between the two networks would be ideal for SKT.

And you asked about the EBITDA margin, and I believe that you are basically referring to IRR factor as well. (inaudible) reviewing internally when we make any investment decisions on those factors. But again, I told you that we have to maintain the network, and acquire more member subscribers and, in turn, generate revenue from that. And I believe that comparing the efficiency through EBITDA margin or IRR, per se, we feel that focusing more on increasing the absolute amount of EBITDA would be quite critical. So at this point it would be quite difficult for us to communicate with you regarding the EBITDA margin.

And you asked a question about the China Unicom side. As you know, China Unicom is a listed company in China, so I have a hard time imagining that your assumption or (inaudible) is quite likely. But assuming that that would be the case, we have to remember that our strategic alliance with CU entails certain obligations that they have to abide by, even if there exist such changes in the future. Of course, what is important is to protect the cooperation spirit in maximizing the synergy between a China Telecom operator and SK Telecom in terms of the sharing of the value. So, of course, on that important objective, I believe that the Chinese government and SKT both have consensus about the need for such cooperative spirit going forward. So even after such restructuring is conducted, I'm sure that we would have the amicable environment for any new types of negotiation if there is to be another partner.

(interpreted) This concludes the Q&A session. And now we will invite the closing remarks by the CFO.

(interpreted) Thank you for taking part in this conference call. On a few questions raised we were not able to give you very clear, detailed answers. If at all possible, we will do our best from the IR department to follow up with your questions. Once again, your valuable questions and interest will help us achieve better management of our company.

If I may elaborate just a little bit, we anticipate a lot of changing environments in the market going forward with the commercialization of the WCDMA, as well as the introduction of bundled services. Against such changing environments, we will continue to maintain our market leadership and go through efficient management of the business, and therefore, maximize the profitability. So, I ask for your support.

(interpreted) This concludes the conference call for Q1 2007. Thank you.