SK Telecom Co Ltd (SKM) 2007 Q4 法說會逐字稿

(interpreted). Good morning and good evening. Welcome to the conference call for the fiscal year 2007 fourth quarter earnings results by SK Telecom. This conference will start with a presentation followed by a Q&A session. Now we will begin the conference of the fiscal year 2007 fourth quarter earnings results by SK Telecom.

(interpreted). Good morning. Today's conference call will consist of the presentation on the 2007 earnings and other matters of interest by SKT's CEO, Mr. Kim Shin Bae, followed by a Q&A session. Today's conference call will last about one and a half hours with consecutive interpretation for the convenience of international participants. And let me also remind you that all the forward-looking outlook is subject to change, depending on the market environment and changes. Let me now present SKT's CEO, Mr. Kim Shin Bae.

(interpreted). Good morning. I wish all of you a New Year full of health and happiness in 2008. Let me begin with the major highlights on the earnings for 2007.

2007 was a critical year of solidifying sustainable growth trajectory marked by the 50.5% market share, the laying down of the WCDMA business foundation and strong pursuance of the global and convergence businesses, among others. Especially our decision to acquire a stake in Hanaro Telecom at the end of last year was a significant move in that we could further create customer value in the wired/wireless convergence environment by securing a competitive edge.

Amidst such efforts, our revenue grew 6% year-on-year to KRW11.29 trillion, mainly from the subscriber growth. The wireless Internet revenue also maintained a steadfast growth by 2.5% year-on-year to KRW2.8 trillion or 27.5% of the total revenue, excluding interconnection fees, despite the 30% tariff cut in the beginning of the year.

In the meantime, the marketing expense amounted to KRW2.85 trillion due to the subscriber growth from the overall market size increase, as well as the faster than anticipated WCDMA adoption. The marketing expense-to-revenue ratio was 25.3%.

Mainly due to the increase in marketing expense, the operating income came down 16% compared to '06, recording KRW2.17 trillion. However the net income rose 13.5% year-on-year to KRW1.64 trillion, affected by factors such as the equity conversion gains from China Unicom.

The EBITDA value was KRW4.2 trillion (sic - see documentation).

The faster than expected WCDMA subscriber growth led to the early execution of the CapEx investment on capacity increase and quality improvement. As a result, the CapEx recorded KRW1.85 trillion, which exceeded the annual guidance of KRW1.75 trillion.

Let me now move on to the management plan for 2008. For 2008, we expect changes in the competitive landscape with the expanding WCDMA market and full-fledged introduction of the bundled products. We also expect numerous external changes, such as the abolition of the handset subsidy ban. Nevertheless we will do our utmost to achieve profitability by improving efficiency of our management activities. Likewise, we will pursue growth through visible performance gained from the global businesses, while successfully entering into the convergence arena.

With the aim of achieving these management objectives effectively, SKT has reorganized the Company into four company-in-company or CIC structure at the end of 2007. We will make sure that this reorganization instills independent management with accountability for each business area to achieve consistent growth based on profitability.

Reflecting all the anticipated internal and external changes, we have set the revenue target for 2008 at KRW11.7 trillion. Despite the SMS discount and on-net discount put in place already, we plan to achieve a continuous revenue growth, through subscriber growth, WCDMA service expansion and exploring new revenue sources, such as e-commerce. The CapEx target for '08 is KRW1.75 trillion.

Next, I would like to touch upon our growth strategies. With regards to WCDMA, our '07 policy of gradual migration will continue, while the foundation to grow the revenue will be established through upgrades of network quality and services. To that end, we plan to increase the launching of the competitive handsets during 2008.

Also, we plan to further improve ARPU by securing perfect call quality at par with CDMA and by leveraging a high-transmission speed, not only to support video telephony, but also to develop and offer next-generation Internet and media type of wired/wireless convergence services, like full browser service.

To keep abreast with the rapidly proceeding convergence between industries, SKT started strengthening the business portfolio through new business model development and restructuring of the invested companies since last year to prepare for future growth. Based on this, during 2008 we will continuously strengthen our core content-related music business while reinforcing our market competitiveness in the movie investment and distribution business, e-commerce and online game business, which began in 2007.

Let me now address our global businesses. With the high market saturation in Korea, domestic growth potential has limits. Likewise, domestic content and convergence market sizes are limited as well. Nevertheless, SK Telecom will do its very best to leverage its rich experience and lessons learned to maximize enterprise value and shareholder value through sound growth.

To that end, we plan to secure a long-term growth platform for our Vietnam operation, which has achieved 3.5m in subscriber number as of the end of 2007. We will also strengthen the competitiveness of our U.S. business, Helio.

To lead forward as a global major operator, we also plan to continue making efforts to secure a diverse business and opportunities in markets, including the existing core markets, such as China and the U.S. Becoming the second-largest shareholder of China Unicom in 2007 was a part of such efforts.

In convergence area, we plan to also explore and develop new business models in sizeable markets, such as China and the U.S. as part of our globalization efforts.

Next is our shareholder return policy. As you recall, we had promised a treasury share buyback of KRW200b. Due to the foreign ownership limit situation, we were unable to cancel the shares that we would be buying back. Because of this, based on the various opinions of shareholders, we have decided to convert KRW100b to special dividend. As for the remaining portion, we have already completed the buyback at the end of last year in the final amount of KRW118.5b. Accordingly, the total cash dividend for 2007, including interim dividend and special dividend, will be KRW9,400 per share, subject to BOD approval.

Despite the uncertain management environment expected for this year, we plan to maintain about the same level of shareholder return as last year for 2008. The details regarding the amount of cash dividends and the size and timing of the treasury share buyback will be determined by the BOD, considering the Company's business climate. The management at SKT came to this decision with the belief that striking the right balance between continued growth-driven enterprise value increase and a stable shareholder return is the best way to enhance shareholder value.

Despite the challenging business environment ahead, SK Telecom promises to do its best to ensure continuous growth and shareholder value creation by strengthening the competitiveness through unified efforts of all the members of the Company, as well as the management efficiency improvement.

Lastly, I would like to extend my deepest appreciation to all of the investors and analysts for your unwavering interest and support for SK Telecom. Thank you.

And there's one correction in the English translation earlier. EBITDA value for 2007 was KRW4.02 trillion. Thank you.

(interpreted). Now Q&A session will begin. (OPERATOR INSTRUCTIONS). The first question will be provided by Mr. Shihoon Lee from Hyundai Securities. Please go ahead, sir.

(interpreted). Thank you for the opportunity to ask the questions. I have the following three questions. The first one is the following. Your competitors are presenting rather conservative net addition targets for the upcoming year and so therefore they are expecting quite a bit of market stabilization going forward. So I would like to ask SKT's perspective on the competitive landscape in 2008.

And relatedly, can you share with us your net addition target, especially for the WCDMA subscriber number target for 2008?

And the second question has to do with the CapEx breakdown. For Q4 your CapEx amount of KRW110b was expended on items such as data business and marketing. So can you give us the detailed breakdown for CapEx expected for 2008?

The third question has to do with your convergence business model development. I expect that you would have yet additional cooperation and collaboration in this regard with SK Communications going forward. So can you share with us any specific business models that you are considering at the moment?

(interpreted). Let me address your first question regarding our outlook on the competitive landscape for 2008. We do anticipate some additional competition in the market going forward and I would like cite the following reasons for that. First of all, the subsidy ban will be completely abolished. And also, there will be some regulation changes regarding [using] as well as the bundled service product offering and also on MVNO related matters. Therefore, we still are anticipating quite a bit of uncertainties going forward.

Our net addition target number is around 1m, I would say.

And regarding WCDMA, I feel that the handset prices have to come down further and also the killer applications have to be developed further in order to further activate the market going forward. Therefore, we are not expecting to grow our WCDMA subscriber number artificially or with too aggressive marketing mechanisms. But rather, we would watch the market carefully in order to gradually and stably migrate into WCDMA. But in conclusion, I would say that we would definitely go for market stabilization and would refrain from any overheated competition in the market.

You talked about the CapEx expenditures on data business and marketing. And if I share, may share with you the breakdowns of that KRW110b expended already, they were mostly spent on the next-generation marketing IT infrastructure and also the e-commerce related investment for social network related e-commerce products for the future, and also for the [rental] of phone related expenses.

And regarding the KRW1.75 trillion worth of CapEx expected for 2008, the breakdowns would be as follows. Regarding the capacity increase and quality improvement related WCDMA investment, it will be about KRW700b. And WiBro related coverage expansion, it will incur about KRW300b. And regarding the other types of -- wireless Internet business and other R&D expenses together, it would amount to about KRW750b.

And I do realize that there might be some concern about the CapEx investment. However, let me reassure you that in 2008 we will be completing most of the major WCDMA related investment. Therefore, beyond 2009 we will begin to see the downward trend of the CapEx expenditure. For one thing, for '09 we're anticipating around KRW1.4 trillion. And from then on it will continue to show a downward trend.

And regarding SK Communications related cooperation, as you are well aware, SKT is currently the largest shareholder at all SK Com with a shareholding of 64%. So within the allowed scope, we will continue to maximize collaboration and its synergy effect. And as you know, SKT is looking to expand the UCC and also mobile micro blog related businesses in which we could connect the wire and wireless services together. Whereas, SK Communications is focusing more on the wired side of the services, offering video services and SMS services and such.

So the two companies will not be competing in the same area. But we will be complementary in our businesses going forward as well. And as you know, SK Communications currently has an unprecedented community based services end market presence. And going forward, they would expand their search engine related business also.

(interpreted). The following question will be presented by Mr. [Joe Inya] from [Hanwha Investment Securities]. Please go ahead, sir.

(interpreted). I have the following questions. First of all, my first few questions have to do with Hanaro acquisition. First of all can you share with us the synergy impact expected for SKT side from the acquisition of Hanaro?

And likewise, can you share with us the burdens that should be borne by SKT through the acquisition of Hanaro.

And also, by the acquisition of Hanaro Telecom, I'm sure that you are considering various integration of wired and wireless services and, in the process, I'm sure you're thinking of various sourcing mechanisms for the content. So have you seen any content acquisition strategy change in line with this acquisition decision?

And also, the next question has to do with per-subscriber acquisition cost for 2G subscribers and 3G subscribers. So far there has been a difference in such acquisition costs between the two network subscribers. And after the end of March, the complete abolition of the subsidy ban, then would such a difference in acquisition cost between the two network subscribers change in the future?

(interpreted). Let me address your questions regarding the acquisition of Hanaro Telecom. As you are well aware, we -- with this acquisition decision, we will be complementing the wired and wireless integration trend of the industry, in which we've been lacking the wired portion. So we're trying to deal with the competitive landscape with this acquisition decision.

By the acquisition of Hanaro Telecom, we could expect the following synergy effect. For one thing, we could offer the subscribers seamless services, covering both wired and wireless. And also, secondly, we could expect less churn ratio from the bundled services, therefore enhancing the efficiency of the marketing cost side. So from the mid to long-term perspective, we will be better equipped to deal with the bundled service offering trend in the market. And we will also be able to grow further through convergence market addressing, through the offering of new services and development of new business models as well. And we would have also better accessibility to the whole market.

I wouldn't say burdens from the acquisition, per se, but we would have detailed strategies going forward. But we will be able to communicate with you about the details about the integration plan and also what to do with our future plans after the acquisition is approved for sure and after the things are more definitely finalized.

And you talked about the acquisition cost difference between the 2G and 3G subscribers. And the main reasons for such differential comes from the handset price differential as well as the burden on the part of the subscribers in changing the numbers. And I believe that this differential is coming down as we speak. So during '08 we anticipate the different amount between 2G and 3G in terms of acquisition cost to be around KRW30,000 to KRW50,000 per person. And by 2009 that difference would almost disappear and they would be at par with each other.

However, nevertheless, we are expecting a complete abolition of the handset subsidy ban going forward. And I'm sure that that will, in the short term, increase the uncertainties in the market and possibly increasing the marketing expense in the short run.

However, if you think about it in the -- on the positive note, we would no longer be binded by the policy or the agreement-based regulatory enforcement of subsidy rules. Therefore, we would be able to better target market -- express the target marketing in the market and therefore exercise marketing expenses in a more flexible manner. So despite the possibility of short-term hike in the marketing expenses, in the mid to long run I believe that the competitors will rationalize and therefore contribute to the market stabilization.

And I believe that the competitors are fully aware of our commitment for the self-imposed market share limit of 50.5%. Therefore, I think that market will stabilize.

(interpreted). The following question will be presented by Mr. [Jay Genseng] from [Mujin Investment Securities]. Please go ahead, sir.

(interpreted). Correction to the earlier interpretation regarding the 50.5% market share. The interpreter has mentioned self-imposed and it's simply just 50.5%.

(interpreted). And the question is as follows. I have the following three questions. First of all, you said that you are anticipating visible performance gains or improvement in the global businesses going forward. So can you elaborate on that plan?

And secondly, you said that the market environment in this year will be including a lot of uncertainties, such as MVNO related competition. And I do believe that you are still waiting for an approval from the Fair Trade Commission or the related governmental body in the near future. So I do understand that this acquisition will be approved on a conditional basis. But I'm wondering whether there is -- or from SKT's perspective, the bottom line. In other words, is there a bottom line that you cannot compromise beyond certain level with regards to the condition that could be attached to the acquisition? And if so, can you share them with us?

And thirdly, the Presidential Transition Committee of the President Elect has expressed various opinions about its intention that they will leave the tariff cut of the telco operators to the market mechanism. But going forward, as you have mentioned, if your CapEx related investment continues to go down in the future, there will be added pressure to further reduce the tariff in the future. So how would you deal with such changes?

(interpreted). To answer your question about the global businesses, as you are well aware, last year in China we have become the second largest shareholder of China Unicom. And this year the Chinese government is expected to rapidly proceed with the restructuring of the telecom industry and 3G licensing activities in China. So I believe that there is a high possibility that we could possibly leverage new opportunities in the Chinese market.

And as you know, in the U.S. business, as of the end of 2007, the subscriber number amounted to around 180,000. And this year in the U.S. we anticipate continuous growth in the data related market as well. Based on the one-year experiences and lessons learned in the U.S. market during last year, during this year we will focus more on expanding the subscriber base and also improving the profitability.

And to talk about the Vietnam operation, as I told you before, at the end of last year we have recorded 3.5m subscriber number. And our target for the subscriber number this year is about 5m. And I believe that we have high potential for continuous growth and improvement of performance in the Vietnam operation.

And there are other newly launching businesses with which we could successfully launch our profitability, using those businesses as bridge ahead into the respective markets. For instance, in the U.S. we have established SK Holdings America, through which we could strengthen our Internet business and also the convergence related business. And likewise, in China we plan to seed certain convergence businesses as well.

Regarding the acquisition of Hanaro Telecom, first of all, thank you for saying that you wish that this approval would go smoothly. And since we are in the middle of such approval review process, I don't think that it would be appropriate for us to mention anything about the bottom line on the part of SKT in any conditions that could be attached to it.

However, what I can share with you is the following. I believe that SKT's decision to acquire Hanaro Telecom was a decision to complement a business area that we are lacking in this convergence era. And also, it is in line with the new incoming government's market-friendly M&A promoting type of policy direction. And I think that it would be in line with various convergence services trends that we are witnessing in the market. And we do not foresee any anti-competitive aspect of this deal at all. And therefore, it would not impede the welfare of the consumers in the future as well. So we do have high hopes that the approval process will go smoothly.

You talked about the tariff cut pressure that is possible. And I do realize that there are numerous concerns or discussions about this very topic. As you know, the new incoming government has numerously pronounced their intention that they would leave it up to deregulation and the market competition mechanism in order to bring down the tariffs of telecommunications expenses rather than going through any artificial means. Therefore, we actually anticipate less pressure from an artificial pressure perspective in terms of tariff cut in the future.

And if you look at the entire industry, we might experience slight edging down of the revenue. However, it could be compensated by increasing usage of calls and also less pressure on the subsidy side and also the churn rate side. Therefore, we have plenty of room to compensate for the profitability, I believe.

And you mentioned that an expected less CapEx expenditure in the future might act as a new way to pressure telcos to further reduce the tariff. However, rather than that acting as another pressure to artificially bring down the tariff, I believe that the market will naturally go through the competitive mechanism in order to bring down the tariffs in a natural and appropriate way.

(interpreted). The following question will presented by Mr. [Hong Shi Ki] from NH Investment Securities. Please go ahead, sir.

(interpreted). I have the following three questions. The first is the following. In your opening remarks about the 2008 guidance, I believe that some of the matters of interest on our part has been missing. For instance, can you share with us the ratio of marketing expense to revenue for '08 and also the EBITDA value and ARPU, if you could share them with us?

And secondly, for '08 can you share with us your handset policies? For instance, the number of models that are expected to be launched, of which how many are WCDMA models?

And third question is regarding your distribution channel. For the future, do you have any plans to reorganize the current retail distribution channels? So share with us your retail distribution operation strategy.

(interpreted). You asked about the marketing-to-sales ratio as well as the EBITDA value. But as you are well aware, currently we are anticipating a lot of uncertainties in the market with regards to the regulatory changes and possible laws and policies modifying and revising. And as you know, we are seeing an increase of the proportion of WCDMA in the overall business. So we do anticipate certain level of competition in the markets to continue. But our basic stance, nevertheless, is to contribute to market stabilization by refraining from overheated competition. Therefore, we will not be able to share with you detailed numbers about the market, the marketing expense-to-sales ratio or the EBITDA value at this particular juncture. So we apologize for that.

However, once the competitive landscape begins to show more clarity and as we see more confirmations about the regulatory changes, then we will communicate actively with the market immediately. What I can tell you is that the lineup of WCDMA handsets will increase going forward, including the possible sourcing from overseas manufacturers. Therefore, that will bring down the overall prices and therefore reducing the acquisition related expenses.

And as you know, we are introducing on -- we have introduced the on-net discount -- same carrier discount, that is. And also, there will be bundled services offered which will bring down the retention related expenses as well. So by 2009 I would say that it could possibly go down to the pre-WCDMA period, maybe down to the 20% range.

And to elaborate on the model make-up of the handset lineup, for '08 we are expecting the launching of about 55 different models, of which 60% will be WCDMA handsets. And also the handset price difference between WCDMA and CDMA handsets will come down to maybe KRW20,000 to KRW30,000 per phone on the average, that is during '08. And by 2009 the price differential will this year almost completely disappear.

Regarding the retail or distribution network related strategy, we have established a gradual evolution strategy to deal with the competitive landscape change. So we are executing such strategy as we speak. So for 2008, because our current ratio of wholesale portion is large relatively, we will focus on strengthening the retail portion.

(interpreted). The following question will be presented by Mr. [Stan Neill] from Lehman Brothers. Please go ahead, sir.

(interpreted). I have the following three questions. The first has to do with your cost-cutting measures going forward. You have a limited leeway, I believe, in regards to the possible reduction of the marketing expense, I understand. However, in terms of non-marketing expenses, there could be some possibilities to further reduce it. For instance, the commissions are on the rise. So can you share with us some specific plans to reduce the non-marketing expenses?

And the second question has to do with your CapEx on WiBro. You said that all of the breakdown of the expected CapEx for 2008, KRW300b will be spent on WiBro. And so far, in the past, we have always thought that SKT's WiBro policies have been rather conservative. But the amount of KRW300b seems rather high in our opinion. So can you share with us what was the actual WiBro expenditure for 2007? And can you share with us your long term CapEx plan for WiBro?

The third question has to do with Helio. In '07 how much was the exact equity related, equity method related loss? And in '08 you said you would focus more on the profitability side so does that mean that it is possible to bring down the equity loss from Helio?

(interpreted). Let me address your question about the cost cutting measures. Amidst such stagnant market situation we are doing our utmost to increase the profitability. And in that context we will flexibly deal with the marketing expenses as well to minimize the marketing expenses.

And as you mentioned on the part of the non-marketing expenses for the past ten years, we have been implementing Six Sigma programs and conducting various measures to reduce costs involved. For instance, other cash outlay related expenses have been under control as a proportion against the revenue. So starting from '05 it has been controlled between 41% or 39% level.

And regarding the network related operational expenses, despite the fact that we are running dual network we have been quite effective in cutting -- limiting the costs involved with the network operation. And the network operation expenses back in '05 was about 7.9%, and in '06 and '07 we have been successfully managing it at about 8% level. And we will further pursue Six Sigma in this way in order to further bring down the network related operations.

And a large portion of the network operation expenses has to do with the leased line related expenses and we will further bring down the cost in that regard by sharing these leased lines between equipment and by expanding the capacity of our proprietary network as well. And for your information, that portion of the expenses has been maintained at about KRW390b level in recent few years. And although I cannot share with you the exact numbers for '08, we will nevertheless do our best to maintain our Six Sigma efforts and other innovative measures in order to minimize costs.

And you asked about the WiBro policy of SK Telecom. On top of the business model on Internet direct access services regarding WiBro we will also utilize the WiBro network as a complementary network in order to disperse and distribute traffic of WCMA subscribers in especially densely populated areas. By doing so, we will improve the efficiency of the WiBro network.

And I believe that the following three prerequisites are necessary in order to further activate the WiBro market in Korea. First of all, there has to be the necessary technology development in order to enable such data traffic distribution or dispersion. And secondly, we need to come up with more killer applications that can be implemented on the WiBro network. And thirdly, there are issues of improving the equipment performance and bringing down the prices of such equipments. And fourthly, also it has do with the handset functionalities and the prices of these handsets as well. And in all those areas there are room for improvement.

Therefore we will watch the market closely and see how these different elements evolve. And we will continue to use WiBro network as a complementary network to assist the existing WCDMA network. Therefore we will be wise in implementing this strategy.

And regarding Helio, as of 2007 our loss from equity method was KRW145.9b. And this year we are expecting to see less network cost involved and also increased subscriber number. By doing so we will be able to disperse the fixed cost element and therefore have better improved profitability structure. So in areas of cash flow and cost reduction and supported by the enhanced brand awareness, we anticipate a reduction in the equity method loss.

Again, regarding Helio, we will come up with various measures to bring down the network cost while looking for third party funding options and therefore fundamentally improve the Company business structure within this year. So by doing so I anticipate that equity method loss will be minimized. And we will do our very best to stabilize the business as a whole so that we could reach a positive number in terms of free cash flow by year 2010.

(interpreted). The following question will be presented by Mr. [Dong-seop Lee] from Daishin Securities. Please go ahead, sir.

(interpreted). Regarding your question -- there is a question about CIC structure. Reading your newspaper articles about CIC, it sounds like it is to be a restructuring of a type to improve the Company. So can you share with us the possible positive effects that SKT can anticipate from going through the restructuring into the company-in-company structure? So share with us some detailed information about that.

And secondly, looking at your performance I cannot help but wonder whether the competitive environment was this bad. In other words, if the environment was -- I'm wondering whether the environment was so bad that even a dominant player like SKT was having such a hard time or was there some other reason why the results are not up to par.

And the last question is that LG Telecom is continuously asking for an allowance of roaming in the 800Mhz bandwidth, so what is your stance in allowing such roaming to LG Telecom going forward?

(interpreted). Your first question had to do with the CIC structure and whether that has anything to do with a possible restructuring within the Company. And I don't think there is any need for you to link the two concepts together. Because SKT is currently successfully managing the labor cost below 5% of revenue so far, there is no restructuring type of implications involved with this recent reorganization.

And by introducing the company-in-company system, we could anticipate the following synergy effect. First of all we would enhanced empowerment or autonomy within the Company enabling more speedy decision making process in a very rapidly changing environment. And also depending on the business unit specifically we could offer differential performance compensation systems so that we could maximize accountability and autonomy within the Company.

I believe there might have been some concerns on your part regarding our marketing expenses during Q4. However, the Q4 expense hike has something to do with the seasonal effect as well. And I ask you to please look at these expenses as not an expense item per se but rather as an investment, an investment in our future growth in the WCDMA area as well as the enhanced brand awareness of our key brand. And based on the subscriber growth that has taken place in Q4 we could lead the revenue and profitability growth of '08 as well. And we will be able to further narrow the gap in the WCDMA numbers for the upcoming year as well.

Once again I believe that we did have to expend a little more expenses in order to deal with the competitive environment. However it was compensated by the increase in net addition of subscribers and that has led to stronger foundation for future revenue and has increased our market share. Therefore it has solidified our stance as a market leader. And I think that in the long run that will encourage competitors to further participate in the market stabilization endeavor that we are currently leading. And we will continue with this effort.

To answer your question about LG Telecom's request for allowance of roaming in SKT's 800Mhz bandwidth, this is our view. The gist or the spirit of this basic law allowing such roaming is for a new entrant into a telecom industry to be able to come up -- to compete on a leveled ground because of their inherent limited network coverage in the very beginning of the business operation.

However, we're talking about an MNO operator with more than 10 years experience in the market and is a basic carrier in our country as well. Therefore, I believe that allowing such roaming to such a player would go against the competitive enhancement mechanism on their part and at the same time it will not contribute any in the overall development of the telecom industry in our country. And according to my understanding there has never been a case in any other global market to allow such a long lived MNO such a roaming in another competitor's network bandwidth.

(interpreted). Due to time constraint we are going to take questions from three more participants. And the following question will be presented by Mr. Mitchell Kim from Morgan Stanley. Please go ahead, sir.

Thank you. CEO Kim, it's good to have you on the call. I have two questions. The first question is on your balanced strategy of investment for growth as well as shareholder return. Now I could appreciate you are investing in growth. However, over the last two, three years, you've been doing that. Despite that we have not seen these investments contribute to earnings. You're asking the investors to remain patient but how much longer should investors be waiting before your investments start to make earnings -- become earnings accretive? If you could give us some sense as to how meaningful these earnings contributions could be in the long term, I think that could be very much appreciated.

Second question is on the free competition principle that the new incoming government is likely to uphold. What does that mean to you? Do you think that there were a lot of regulatory restrictions that limited you from fully competing against your smaller competitors? If so, what are some of the areas that you could now be free to compete more aggressively and what does that mean to margins in the long term?

(interpreted). First of all, our basic principle that we need to maintain financial stability in order to strike the right balance between shareholder return and growth strategy will remain going forward as well. And I do realize that so far our growth related investment has not yielded major visible effects. And I do realize that you have been quite patient with us. And as the CEO I have high interest on this matter and I'm doing my very best to return the necessary results for our shareholders.

Let me also tell you that Rome was not built in a day and in conducting global businesses we need to compete against major global players. And in the process there is a required necessary time requirement in order to build our necessary capabilities and to build the necessary experience in the respective markets. And based on the experiences and lessons learnt so far I believe that this year will prove to be a very critical juncture.

For instance, as I told you before, in China we are anticipating a major industry restructuring and 3G licensing and we anticipate quite a bit of convergence related business opportunities. Likewise in the U.S. not only Helio but we are anticipating additional opportunities in the convergence business as well. And I think that this is quite encouraging for us. So based on our experiences accumulated so far, we will do our very best to make sure that your patience so far proves beneficial.

Overall, we quite highly positively evaluated the new incoming government's strategy going forward in that they are looking at business friendly policy expansion and more focused on the customers and therefore elimination of some of the asymmetrical regulations that have been place. So we evaluate this in the overall in a very positive manner. However, these deregulations and changes anticipated can be two sides of the same blade. In other words the elimination of the asymmetrical regulations could prove to be a boon for us of course. However, the fact that there can be lower entry barriers and more diversified competition allowed in the market can serve as somewhat as a negative change for us as well.

But one thing is for sure, such diverse way of deregulations will mean to us that we should best leverage in these more free and flexible ways to compete in this competitive market. We have more leeway to select from various options. Therefore we will continue to focus on our customers and maximize our leverage and therefore improve our performance more.

(interpreted). The following question will be presented by Mr. Yongseok Chae from Mirae Asset Securities. Please go ahead, sir.

(interpreted). I have the following two questions. First of all as you have mentioned, it seems that the major trend in the market is towards deregulation and integration of services. And I believe this entire change in the market is requiring a complete shift of competitive paradigm. In the past if SKT's competitive edges included for instance, handset subsidy and call quality, network quality and marketing differentiation, I believe that under the new regulatory environment new types and new sources of competitive edge is required. So I would like to ask the CEO's opinion as to what those new sources can be. So share with us your insight on that.

And if I may share with you my opinion on this issue, it could be bundling or contents that could differentiate you from other players. And despite the fact that SKT owns numerous content related subsidiaries so far the synergy has been quite minimal. And so tell us something about that.

And also regarding bundling, when compared to KT how would you pursue differentiation in terms of bundling?

My second large question has to do with China related restructuring. Once the restructuring of the telco industry in China shifts towards more equity allocation to China Telecom then I think that your proportion or your weight in the China market will also shift as well. So what is your ultimate target in the Chinese market? Would you like to have the major management rights in China? Or would you prefer to have some types of alliance with China Telecom?

(interpreted). Yes, you are correct in pointing out that the new competitive paradigm shift is calling for new sources of competitive edge. And I believe that SKT's competitive edge does not simply come from simple subsidies and such but rather from brand image and high level of customer service. And as you are well aware we have been ranked number one for the past decade in the NCSI customer satisfaction survey.

And also we present various capabilities in terms of network and platform technology and operation know how etc. And more than anything else I believe that our possession of customer insight is especially our competitiveness because long time ago we have developed CRM systems before any other players. And I believe that it is at the level which is at the highest level at the domestic market. And recently we have conducted a survey to assess the competitiveness of our Company against other global major peers. And according to this survey in most areas we were either at par with the global peers or even better in some categories.

And of course some areas we have to improve upon does exist of course. And in terms of better leveraging our capabilities such as brand service and handset and loyalty programs, those things have to be more better combined and integrated on a horizontal basis. So to that end we will continue to do our best.

And I believe that basically a company's competitiveness derives from meeting customer needs through customer satisfaction management. And to that we are -- based on that I believe that we could further enhance our competitiveness. So we do possess quite a bit of such capabilities already and I think that the current market environment is right for us to unleash such capabilities even further going forward.

And secondly, regarding the contents, I would take your comment as telling us and encouraging us to further leverage the synergy that is possible with our subsidiaries and their capabilities in the future. Because as you know, we are already enjoying quite a bit of synergy with our subsidiaries through services such as Melon and also various video contents and mobile [psi world] connection as well. But we will nevertheless reinforce such capabilities even further.

To answer your question about the China business, we currently have the alliance arrangement with China Unicom, the MNO operator in China. And I believe that in that arrangement we have a very limited leeway in terms of having any major management control. And as you are well aware China is currently going through various restructuring and 3G licensing process by the government. Therefore timewise I think that this would be quite inappropriate for us to comment anything major about that aspect.

But the only thing we could share with you is the following. We are constantly keeping the possibility of forming alliances with China Unicom or any other major basic carriers in China in the future. So those options are always open.

And the second thing is that in terms of the convergence business we are currently developing various business models in terms of convergence and we are discussing various ways to cooperate on these areas. And these possible co-ooperations are relatively free from the upcoming Chinese regulatory changes. So starting from this year I believe that we will begin to see a lot of development in terms of businesses such as mobile payment or convergence services or location based services. So we will further expand the convergence related market opportunities in China.

(interpreted). And the follow up question then is there a possibility that China Telecom could possibly or such a basic carrier company of China could invest in a stake in SK Telecom in the future?

(interpreted). Well, for your information because of the foreign ownership limit alone, I think that that possibility is quite small. And as far as I understand these Chinese players have more interest in entering into emerging markets rather than other countries.

(interpreted). The last question will be presented by Mr. Mingoo Kang from JP Morgan. Please go ahead, sir.

(interpreted). I have the following questions. First of all, regarding the Vietnamese operation, earlier in your remarks you said that you have a very positive outlook. However according to a news report by Yonhap News yesterday, there were some reports that your partnership relationship has certain uncertainties and another CDMA operator in Vietnam has decided to transition into a GSM mechanism. So there was an article that competitive landscape might worsen. So can you confirm on this item?

And the second thing is when is your BCC arrangement going to change to joint venture in Vietnam, do you think?

And thirdly, I understand that you cannot share with us the detailed information on the share between WCDMA subscribers and CDMA subscribers for the short run, but if you could share with us the mid to long term objectives. Now two, three years down the line what do you think is the most optimal ratio between WCDMA and CDMA subscribers in order to maximize efficiency of the network?

And the last question is I believe that you are planning to enter into the online shopping mall businesses. So what is the anticipated investment in the upcoming year? And of that amount how much of that amount will be captured by expenses?

(interpreted). Basically we believe that the Vietnamese market is a very promising market indeed. And I believe that you are also aware of that because of the high growth trends we are witnessing. The country has joined the WTO and they're revising their current systems to meet those requirements and therefore there is a high upside potential. That is precisely why all the major telcos around the world are showing high interest in Vietnam.

Currently we are in the process of revising the agreement on the BCC and we are discussing additional investments through such renegotiations. And of course, as with all negotiations we have gone through slight difficulties in the middle of such negotiations. But I believe that that portion has been exaggerated by the press perhaps.

And you asked when a possible transition into a joint venture arrangement would be possible. And currently the legal ground has been established to enable that. So this year I'm sure that we will go through the possible transition process. And of course because it entails government approval, there always exists certain uncertainties. But since it is in progress right now, we have high hopes.

You asked about the most desirable ratio between WCDMA and regular CDMA subscriber number in the mid to long term. I believe that it is very much up to the receptivity on the part of the customers and also the handset price reduction and what types of killer applications can be enabled on top of the high speed transmission network between 1Mbps. So those things will determine the number of subscribers therefore it's not something that we could artificially control.

But what I can say is that by developing various services and different business models and by bringing down the prices of handsets even further we could expedite the process somewhat. And depending on the profitability of each respective network we will allocate the CapEx amount accordingly as we proceed in the future. And accordingly, we will also allocate appropriate subscriber target as we go along.

And on top of that you should keep in mind that we are already in the process of discussing 4G technologies including LTE which is long term evolution which is 3.9 generation technology before 4G. So we have to consider various factors when looking at these various items. So this is a very comprehensive decision that we have to make.

Regarding your question about e-commerce, we anticipate quite a bit of growth in this mobile related e-commerce area together with more advertising possibilities, we see a lot of opportunities. In the future we anticipate that some type of hybrid mall in the online setting which combines both the open market and also specialized mall aspects will become the major leading forces in the respective markets. And we are expecting to launch a website directly translated '11th Avenue' or '11th Street', and we will leverage on existing mobile infrastructure with more convenient search capabilities. And we will also add a type of social shopping capabilities which will enable chatting for the shoppers. With those specialized points we would differentiate our new shopping mall which will be launched.

And depending on the market accessibility and also the response from the market, we will readjust the -- or revise our investment or expense allocations as we go. So we will not be able to share with you these detailed numbers as of yet. But we will watch the market carefully.

(interpreted). This ends the Q&A session. We will now invite the closing remarks by our CEO.

(interpreted). Thank you very much for taking part in this conference call despite the long hours. During the conference call there were questions that [inferred] to the fact that you have concerns and expectations from SKT, that we should further stabilize the market situations while actively leveraging our competitive edge amidst such rapidly changing environment in the competition area, while we pursue the profitability. So we've better understood your requirements and expectations and we will do our best to go in that direction by running and managing the market accordingly. And at the same time we will do our utmost to minimize our cost as well.

And also we will do our best to start showing visible performance results from the various growth strategies that we have been implementing so far. And we do realize that the bottom line is directly related to shareholder return and we will do our best to improve that as well. And in order to do that, especially on the global businesses, we will more tightly manage those respective businesses to strike the right balance between profitability and growth. So we will do our very best to satisfy your expectations. Thank you for listening, thank you.

(interpreted). This will end the 2007 fourth quarter earnings conference call. Thank you.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.