SK Telecom Co Ltd (SKM) 2008 Q2 法說會逐字稿

Good morning and good evening. Welcome to the conference call for the fiscal year 2008 second quarter earnings produced by SK Telecom. This conference will start with a presentation, followed by a Q&A session. And now we'll begin the conference of the fiscal year 2008 second quarter earnings produced by SK Telecom.

(Interpreted). Good afternoon. Today's conference call will consist of SK Telecom's CFO, Mr. Kyou Bin Lee's opening remarks on the earnings results of Q2 2008, as well as other matters of your interest, followed by a Q&A session.

This conference call will last about one and a half hours with consecutive interpretation. Let me also remind you that all the forward-looking statements are subject to change, depending on the macroeconomic and market situation.

Now let me present CFO, Kyou Bin Lee.

(Interpreted). Good afternoon. My name is Kyou Bin Lee, the CFO of SK Telecom. Thank you for taking part in today's earnings conference call for the second quarter 2008, despite your busy schedules.

Let me begin with the earnings highlights for Q2, 2008.

Our revenues stood at KRW2.931 trillion, which grew 3.3% quarter-on-quarter and 3.1% year-on-year, supported by the subscriber base expansion.

The Wireless Internet revenue edged up slightly from the previous quarter to KRW600b due to the increase in both data information usage revenue and fixed price plan subscriber number. On a year-on-year basis, however, the number came down, affected by the SMS tariffs cut and the customer protection and practical benefit extension efforts, like a tariffs cap on teenage subscribers.

Going forward, we will ensure continuous growth of the Wireless Internet revenue through efforts like data fixed price plan expansion, strong fixed-wireless convergence services and increased open network business.

The marketing expense amounted to KRW876b. The introduction of lock-up contracts and handset instalment payment system, together with growing share of WCDMA subscribers led to the increase in subscriber acquisition and retention expenses. As the result, the marketing expense rose 14.3% quarter-on-quarter and 24.6% year-on-year. The marketing expense-to-revenue was 29.9%.

The operating income was KRW533b, which was a 3.8% reduction compared to the prior quarter and a 19.5% decrease year-over-year, mainly driven by the increase in marketing expense and depreciation. The net income and EBITDA were KRW298b and KRW969b respectively.

Next, I would like to comment on the future market outlook.

The first half of 2008 was marked by various market changes such as the lifting of handset subsidy ban and lock-in contracts. The aggressive WCDMA subscriber acquisitions by the competitors also led to an overheated competition.

We anticipate the second half to be another period of high uncertainty in the market amidst possible continuation of the effects from regulatory changes and fierce competition. However, considering the high level of WCDMA migration achieved by the competitor up to date, the competitive pressure towards the second half is expected to ease somewhat.

By 2009, when the new regulations will begin to take route, the retention effect from the efforts like the lock-up contracts is expected to materialize, auguring well, for the prospect for market stabilization. Especially the bundled services and tariff discount schemes such as the Family Discount and On-Net Discount, are expected to bring down the marketing expenses from higher subscriber retention despite the short-term downward impact on the revenue.

Based on the market leadership, SK Telecom will do its utmost to bring about an early market stabilization through rational and efficient marketing activities. As for the WCDMA strategy, SKT has pursued a natural migration based on the sound subscriber pool. As of the end of June, the WCDMA subscriber number reached 6m, or about 30% of the total subscribers.

SK Telecom will actively seek to strengthen its fundamental competitiveness through efforts such as competitive handset line-up based on global sourcing and expanded new SIM-based mobile financial services.

Regarding the bundled products, Hanaro Telecom's new subscriber acquisition for broadband Internet is suspended for 40 days, as you are well aware. Therefore, we anticipate a full-fledged bundled product offering after this period and we plan to fully launch the bundled products through sharing of the distribution channels and core marketing.

Going forward, we will further leverage Hanaro Telecom's broadband Internet, IPTV and wired services in the creation of bundled products to meet the customer needs. Furthermore, we will do our very best to acquire new customers while enhancing new product up-selling and retention effects through fixed-mobile convergence products.

Let me now move on to the global businesses.

Firstly, the merger between Helio and Virgin Mobile has been announced recently. This decision was deemed the best option in strengthening Helio's competitiveness. Helio will be able to realize a scale of economy by tapping into mobile -- Virgin Mobile subscriber base, while Virgin Mobile can leverage Helio's advanced data business-related resources and capabilities and its post-paid service platform. The synergy between the two companies is expected to secure a foundation for stable business and competitive edge in the market. There will no further investment in Helio after this transaction.

In China, the telecommunications industry restructuring plan has been announced. With the imminent issuance of the 3G licenses the market is transitioning into a wired-wireless convergence market. We believe the ongoing restructuring will serve as a catalyst for the expansion of diverse business opportunities in wired-wireless services in China. Even after the merger between China Unicom and China Netcom, SKT will continue to cooperate as a strategic partner. In addition, SKT will leverage the locally acquired Telematics' music and game entities in its efforts to expand the Fixed Mobile Convergence businesses in the market with huge growth potential.

Next, I would like to touch upon the Convergence and Internet business.

In the new Convergence business area, SKT is strengthening its wired-wireless portal-based services such as music, online game, e-commerce and investment in movie production and distribution, among many. Notably, the open market the "11th Street" was launched -- which was launched in February, has secured a third place in the market in just three months since opening. This is seen as a successful entry. We plan to build the trust among customers and sellers through differentiated services and marketing, while identifying business opportunities in the global market utilizing competitive products and sellers.

In the Internet business we are making the necessary preparations to provide convenient and user-friendly services optimized for the wireless environment by diversifying NATE services with wired-wireless convergence services, and by offering new user interfaces utilizing wired Web technologies such as Wiget.

Furthermore, we will continue to expand the open network business by developing business models and supports to help vitalize the Wireless Internet business supported by the participation of various external partners.

Lastly, let me comment on the shareholder return.

As we've communicated in the beginning of the year, the overall shareholder return for 2008 will be at a similar level as the previous year. As with last year the interim dividend has been decided at KRW1,000 per share. The remaining shareholder return decisions will be determined at the BOD considering the Management circumstances of the Company.

Amidst the changing business landscape at home and abroad SK Telecom is solidifying the foundation for future growth based on the long accumulated competitiveness. The Management and the employees of SK Telecom share strong confidence that our current efforts for growth will ultimately bring about the increase in enterprise value and shareholder value.

I ask for your continued support and interest for all the business activities of SK Telecom. Thank you.

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

(Interpreted). Now Q&A session will begin. (OPERATOR INSTRUCTIONS). The first question will be provided by Mr. Dong-seop Lee from Beijing Securities. Please go ahead with your question.

(Interpreted). Thank you very much. I have the following two questions. Recently there have been numerous reports through the media about SKT's possible investment into Sprint Nextel equity. So can you share with us whether such news has any validity to it? And if there is any progress, how far is it proceeding?

And the second question has to do with your comments that the second half will be most likely more stable in terms of the competitiveness in the market. But can you be more specific as to whether SKT will [deal] with such a manner, if and when SKT -- KTF for instance is not as aggressive in its marketing effort? So can you be more specific about your marketing efforts, reduction efforts that you are planning so far?

(Interpreted). Thank you very much for your question. I believe that you wanted a more detailed explanation about the recent disclosure we made in recent days. Our basic position is that, since the domestic market is pretty much saturated, we have limited growth potential domestically. Therefore, we have been quite interested in overseas investment. And we believe that the US market is a very big potential driven market with large scale of high quality subscriber base in which we could possibly grow our data and convergence related business models.

So that's our awareness about the US market as of today. And, as you know, SKT has been interested in possible expansion into overseas markets, including the US and China, and we are currently considering various options in line with such strategies. However, as you are well aware, we have disclosed that we are not pursuing any acquisition endeavors for a management control of a major telco in the US.

And, beyond that, I ask for your understanding that we cannot share with you too much details about any particular matters. But let me reassure you once again that we will make all the investment decisions based on sound investment principles so that we do not impede any -- erode any shareholder value for SKT shareholders.

To answer your questions, I would like to first of all comment that the second quarter this year was a period of fierce competition mainly driven by the lock-up contract introduction into the market, as well as the handset instalment payment support system that was introduced. And also our competitors pursued an all-in strategy to acquire as much subscriber as possible in the WCDMA arena. So that was the reason for the heated competition in the market.

And, in the second half, of course we still have a lot of uncertainties in the market because, first of all, there are uncertainties surrounding the possible treatment of the lock-in -- lock-up contract related subsidy provision, whether that is to be treated as intangible asset or not. So that has certain uncertainties to it.

And, secondly, with the inter-operator USIM unlocking regulation approaching there is certain uncertainties there as well. And with the introduction of the bundled products in the market, since it's the beginning of such an approach in the market we will have to go through certain rule setting stages.

So such are the market uncertainties that we expect in the second half. Nevertheless, SKT still abides by its original position that, assuming that we maintain certain level of market share in the market, we will refrain from overheated competition by making a role model in that regard. So that position remains unchanged. And, as you are well aware, our competitor has pretty much achieved quite a bit of migration into WCDMA platform already. So, for those reasons, we believe that compared to Q2 in the second half of this year the competition will be less.

(Interpreted). The following question will be presented by Mr. [Namguin Choi] from [Dongyan Securities]. Please go ahead with your question.

(Interpreted). I have the following two questions. The first question has to do with your shareholder return policy. You have mentioned just now that you will maintain the level that you exercised last year. If you recall, last year there was a KRW9,400 per share dividend paid out, along with about KRW100b worth of treasury share buyback. So I'm wondering, when you say you will maintain last year's level this year as well, would that include the treasury share buyback as well?

The second question has to do with Hanaro Telecom. After SKT has acquired Hanaro Telecom, the share price of Hanaro Telecom has dropped significantly, so what is the perspectives coming from SKT on that particular trend? And any measures to deal with it? And, furthermore, do you have any possibilities of acquiring more amount of equity in Hanaro Telecom?

(Interpreted). Let me answer your first question first. Regarding our shareholder return policy, we have mentioned that we will maintain the same level as last year and that does include treasury share buyback, as you have mentioned.

Yes, let me answer your second question regarding Hanaro Telecom. Recently, the domestic stock market has been quite bearish, and especially the telco related shares have been quite bearish as well [I believe] that the stock market is currently going through a correction. But amidst such correction, nevertheless, Hanaro Telecom share price has been relatively coming down further. I believe that the reasons can be the following.

After the acquisition by SK Telecom, as you are well aware, Hanaro Telecom was subject to 40-day suspension of new subscriber acquisition because of the improper disclosure of the private customer information, and that has led to a delay in synergy effect that was originally anticipated by other market participants. And, as you know, with the prohibition of telemarketing activities as well, the subscriber number increase has been actually going through a reduction.

So those are probably the reasons for the concerns that exist in the market. However, after the ban on the new subscriber acquisition is lifted, we anticipate the full launching of the bundling services will be enabled, together with SKT products, and we will further leverage SK Telecom distribution channels for cross-selling and we will utilize customer benefit program sharing opportunities and further pursue core marketing.

So I believe that such efforts will be able to eliminate such concerns that exist in the market currently. And on -- at the same time, at Hanaro Telecom I believe that the top management is working very hard to come up with counter measures to deal with the rapidly changing competitive landscape in the market.

So, although it is true that the synergy impact is delayed somewhat compared to the original anticipation, I believe that after all these actions are taken, based on our fundamental competitive edges we will be able to begin to materialize our common efforts that are put into the success of Hanaro Telecom. And once these things are completed we expect the share price to pick up again to the previous level. So I believe that that could alleviate a lot of the concerns.

The second part of your second question was whether SKT has any intention to acquire further equity in Hanaro Telecom. As you are well aware, the current equity holding by SKT is about 44% and we believe that this is sufficient in terms of management of Hanaro Telecom, therefore, at the moment we have no such plans.

(Interpreted). The following question will be presented by Mr. Mitchell Kim from Morgan Stanley. Please go ahead with your question.

Yes, thank you. I have two questions. First one is on your retention strategy. You have talked about using On-Net discount and also introducing contract obligations. Despite that, if you look at your second quarter, the churn rate, it's risen to 3.2% and despite the fact that you're spending a lot more on marketing. And now you're talking about introducing bundling discount and I was just wondering do -- why do you think this will lead to lower churn? And, if so, when do you expect bundling in other retention strategies start making impact? And are you not worried about the fact that you may have to [give] bundling discount, yet we may see high churn continuing, which will be the worst situation?

Then my second question is on the potential tariff cut. Just wondering if you could give us some update on what tariff reduction plans, if you have any? And just some thoughts on why not just reduce tariff, trying to use that to your advantage and get government off of your back? And, in fact, because you're spending a lot on marketing, if you just reduce marketing cost certainly [then] you'd be able to maintain your margin despite reducing your tariff.

Those are the two questions. Thank you.

(Interpreted). Your comment on the churn rate increase during the second quarter, I believe that the main reason behind that was the increasing subsidy payment as well as higher mobility of the subscribers because of the heated competition in the market. And we believe that these are temporary phenomenons. And going forward into Q3 and Q4, we anticipate that the market will normalize.

Also let me comment that with the introduction of the On-Net discount program we have actually seen a reduction in churn rate. So we believe that it is taking place. Also, although it is true that at the initial stage of any such discount program we could incur higher marketing expenses but, going forward, if you look at it from the mid to long-term perspective we will not only enjoy the retention effect but also be able to achieve market stabilization as well.

Regarding your second question, I believe that the government policy stance is that it wants to promote and vitalize voluntary competition in the market in the positive direction. And, looking at the development history of the mobile telephony market, as well the ongoing trend of convergence, I believe that that is a very desirable direction. And we had anticipated a further emergence of asymmetric regulations emerging in the market originally.

And, also regarding the tariff reduction, as I told you before, we have already launched the On-Net discount and also Family Discount programs, and we believe that such programs will contribute to the effect of tariff reduction in the market. And, in the long run, we will also be able to launch various bundled products together with Hanaro Telecom. Therefore, at the end of the day, the actually perceived and experienced priced discount on the part of the customers will be even further enhanced.

Therefore, as we anticipate such autonomous and voluntary competition in terms of tariff in the market will persist, I believe that the government's expected results will emerge just from such natural competition.

(Interpreted). The following question will be presented by Miss Gina Kim from ABN Amro. Please go ahead with your question.

Hi, sorry. Good afternoon. Could you provide a breakdown of the equity method losses and an explanation as to why these worsened year-over-year and Q-o-Q?

(Interpreted). To give you some specific numbers regarding the losses from equity method, our equity method [last for this] (technical difficulty). To answer your question about the equity method loss, our loss for this year amounted to KRW55.8b. And compared to last year same period KRW48.8b, that was an increase by about KRW7b. And on a quarter-on-quarter basis it was an increase by KRW16.6b from previous quarter's KRW39.2b. And the reasons are because of the increasing losses coming from Helio and SK Vietnam operation. So those are the reasons why we have seen an increasing equity method loss on a year-on-year and a quarter-on-quarter basis.

I'm sorry, can I just ask whether we can expect these losses to increase or at least continue for the time being?

I would like to also elaborate on the previous answer, because that was not sufficient enough. Let me also add that during the second quarter there was an equity method loss coming from Hanaro telecom as well. But because Hanaro Telecom is a listed company I am not able to share with you the detailed numbers now. But I'm sure Hanaro Telecom during their earnings conference call will be able to share with you such loss. And I ask you to contact Hanaro Telecom's IR department on that issue. So one thing's for sure, Hanaro Telecom has a certain contribution to the increasing loss on the equity method loss.

And to answer the second part of your question, as you are well aware, [Huyu] took up a lion's share in our equity method related loss in the past. However, going forward Huyu will not be captured as one of the equity method loss related items any more. Instead, the version mobile, since it's a company that is enjoying surplus, we could actually expect some type of valuation gain in terms of equity methods. And also regarding Hanaro Telecom, once we begin to normalizes the operations at Hanaro, we expect to achieve equity method gains from that operation as well. So going forward we anticipate better numbers.

Thank you.

(interpreted) The following question will be presented by Mr. Sam Huk Yan from Lehman Brothers. Please go ahead with your question.

(interpreted) I have the following two questions. The first question has to do with China Unicom. As you are well aware, with the announcement of the 3G restructuring plan by the government in China, your equity holding in China Unicom has been dropped to 3.7%. And I recall that previously the management at SKT has mentioned that you will decide on future plans, one such 3G restructuring plan is announced. So now that the plan has been announced, I'm wondering what that 3.7% equity holding means to SK Telecom. Do you think that's a strategically usable type of percentage for SK Telecom? And also relatedly, do you have any intentions to further invest into either China Unicom or China Telecom going forward? If not, would it be possible that you would be selling the current shareholding of China Unicom at some time in the future? And would that decision be possibly linked with your current US related strategies as well?

The second question is something about your marketing expenses. I would like to know the difference between the subsidy paid for MNP subscribers as well as handset changing subscribers. What was the difference between the two such groups in Q2, and going forward into Q3 and Q4, is there a possibility that your handset change subsidy is also likely to go up?

(interpreted) To answer your first question, as you are well aware, the Chinese government has recently announced its restructuring plan for the telecommunications industry. And as a result, China Unicom and China Netcon has merged and that has made the shareholding of SK Telecom down from the existing 66.6% down to 3.8%. And the merger between CNU and CN was mainly led by China Unicom and as the second largest shareholder of China Unicom we expect to continue to play a strategic role with that merged entity going forward. And year 2008 in China is marked by not only the Olympic Games but also the telecommunications market restructuring plan being announced. And they are expecting an imminent announcement of 3G license issuance as well.

So China is going through various changes as we speak. And SK Telecom, to deal with such various scenarios, has been reviewing various options up to date. And also we believe that China is a very strategically important market for SK Telecom in terms of globalization efforts. So we will continue to do our best to begin to materialize all the existing already put in efforts so that we can maximize shareholder value for SKT shareholders.

And relatedly we have no intention at the moment to sell our current 6.6% holding in China Unicom. And we have not come to any specific decisions on whether or not we would further invest into Chinese telcos either. And also I believe there have been some media reports recently regarding a possible joint venture negotiation with China Telecom, but again on this matter, nothing has been decided at the moment.

To answer your second question, as you know, we have introduced the lock up contracts and also have introduced handset installment payment scheme. And such subsidy payments have been given out to both MNP customers as well as handset changing subscribers at the same condition level. And accordingly with the increasing MNP new subscriber acquisition, there has been some impact on the initial commission amount, and also for the handset change subscribers there has been some impact on the retention commission. And as we're well aware, we used to have a limitation as to who can be eligible for such handset change related subsidies. It used to be those subscribers that were with SKT more than 18 months prior to that handset change.

But such pool has been expanded to all the subscribers. Therefore that has led to more active handset change in market which has led to increasing retention commission amount. So through such efforts per subscriber acquisition costs between MNP and handset change has been reducing quite a bit. And that is in line with our higher retention policies that is being pursued by SK Telecom at the moment. So such trend is expected to continue into the near future.

But for your information, let me give you some specific numbers. For Q2 only the gap between MNP versus handset change related subsidies was around KRW40,000 to KRW50,000. But that all depends on which timing you are applying for with such handset change. So we cannot generalize the amount unilaterally, however, but going forward into Q3, assuming that market would still stabilize even further, we anticipate the gap between MNP versus handset change related subsidy amount to narrow even further.

The following question will be presented by Mr. Chungwun Bei from UBS. Please go ahead with your question.

Yes, hi. Thank you very much for the call. Just going back to the beginning of the -- if I remember correct, I think the management mentioned that the many uncertainties this year, but the cash flow uplift from '09 would improve significantly. The marketing sales point 20% level of CapEx fell to KRW1.4 trillion level. At this stage, given what you've seen in terms of the competition in first half and the comments we've seen from the regulator that it wants to promote CapEx, can you please share with us what your conviction level on these comments are at this stage?

Second question is on the interconnection rate decision. Early in middle of third quarter, do you have any sense on when the decision from the regulator will be made this year?

(interpreted) Yes, regarding 2008 as you're well aware, the competitors have basically completed their migration to WCDMA quite a bit. Therefore beyond the 2009, we believe that we could gradually reduce the marketing cost expenses for all players in the -- to a much lower level, to the level before the YWCDMA launching. However, assuming that the market still continues to add irrationally in terms of competition, then that timing might be delayed slightly nevertheless.

Regarding your CapEx related question, the WCDMA and [Wipro] related investments will be pretty much completed during 2008. Therefore into 2009 we anticipate the CapEx expenditure to come down quite a bit and remain that way for some time.

Regarding the interconnection fee adjustment, I believe that the discussions are ongoing as we speak, and nothing has been decided conclusively. Therefore we have nothing concrete that we could share with you today. Nevertheless, we believe that we have made efficient investment into networks so far. So it is our hope that the interconnection fee adjustment can be made in the direction so that we could begin to re-benefit from the existing investment made in the network.

The following question will be presented by Mr. Tanan Park from SK Securities. Please go ahead with your question.

Yes, I have two questions. The first question has to do with the following. You just mentioned that compared to -- at the beginning of the year you said that the CapEx guidance would be about KRW1.75 trillion for the year, which takes up the last 50 of the revenue. And we assume that the lion's share would be sent on WCDMA. And by the end of this year we believe that WCDMA would be pretty much filled. And also going forward you said that CapEx spending would be dropping.

But if you look back into SKT's past history, we know you were launching and establishing 1M equipment and network. It has indicated that after the initial full launch of this income stated, even after that into the first, second, third year after the full completion, you still had to make a lot of additional CapEx investment in the grade zone areas as well. But SKT has announced their intention to go for a (inaudible) strategy by not migrating all the 3G subscribers to 3G but rather maintaining the 3G subscribers on your 1X platform so that they mightn't migrate directly to 4G instead of going to 3G. So I actually initially welcomed such a multi-network strategy, because I felt that by doing that your additional investment into WCDMA, the immediately following years would be less. Because you would be also leveraging your existing 1X networks. And therefore we assume that compared to TTS, you'll be spending less on the WCDMA related marketing or added expenses. However, looking at the marketing expense trend for Q1 and Q2 of this year so far, it seems SKT is trying to set up with KTS in the aggressive acquisition effort. So then, I'm wondering whether SKT is still pursuing the multi-network strategies that you have mentioned in the beginning of the year. Because I'm wondering whether you will be spending additional CapEx on WCDMA next year or two years later, just like the case of 1X network. That's my first question.

And the second question has to do with your overseas business. So far you have been attempting mostly to conduct direct operations as a telco in those respective markets. And in terms of Huyu, you have actually gone through such direct operations. And I'm wondering, aside from such direct operation model, I'm wondering whether you have seen other subsequent strategies beyond that. For instance, in entering into let's say, every participation arrangement in a particular MNO in the QS, for instance, (inaudible) our operation officers, are you keeping in mind other strategic endeavors such as enhanced domestic SK Telecom operations by linking some (inaudible) operations with yours? Or , now we think of regulatory pressures on SK Telecom domestically.

(interpreted) I believe your first question was whether our multi-network strategy still remained valid. And based on that assumption, we need to give you the answers. I believe that the speed of technological changes in this particular market is (inaudible). And we need to deal quite rapidly against challenges posed by our competitors with converged product services. Therefore in such an environment, dealing with only a single network would be quite risky. Every time a new technology comes up, migrating all the existing subscribers from a particular network into a second network all at once can be quite costly and strategically very risky. Therefore that's why we are maintaining the multi-network strategy. And that strategy still remains valid. Basically in terms of customer need or competition landscape or technological landscape, those things change extremely drastically. We try to maintain such multi-network strategies in a very acceptable manner.

To give you some detailed explanation, regarding the CDMA network, we will continue to utilize this as a competitive network for voice and also make those data transactions. And WCDMA will be mainly used for high speed data transmission as well as very specific communications services. And through WCDMA services we will hope to enhance ARPU as well as revenue. And using [wide growth] we believe that that's a very low price multimedia platform through which we can identify new business models. Therefore we could further utilize Wipro as a complementary network for our existing mobile telephony networks.

Regards your second question, every time we make in that sense or make any operations in an overseas market, we constantly review possible synergy effects coming from our domestic operations. For instance, conversion services and using our existing developed technologies domestically and creating synergy, those are the top considerations we make whenever we make decisions about overseas operations. (inaudible) in the US and China, but all overseas markets, with those things in mind we are possibly identifying business opportunities. We look at continuous growth potentials and various other options available. But in conjunction with our domestic leverage, domestic technology leverages as well.

The following question will be presented by Mr. Hunjin Kim from Goldman Sachs. Please go ahead with your question.

(interpreted) Thank you very much. It appears that you've been able to partially offset the declining calling curves year-over-year by increasing your monthly fees. Can you help us understand whether this is a function of subscribers switching over to pricing plans with higher monthly fees and lower pulse tariffs? Or should we actually consider the direction of these movements independent of each other?

A following question to that is, do you see any risk of the National Assembly or rather politicians taking the lead and petitioning putting basic fees, not calling fees, separate from the regulator's initiative to lower tariffs?

The other question is, are any handset margins in the second half from overseas manufacturers then will the subsidy schemes for these be different from the subsidy schemes that you have for existing handsets?

And the last is on Vietnam, the macro-economic conditions in Vietnam don't appear to be very bright. Do you see a headwind for [S phone] and thus need to recapitalize? Thank you.

(interpreted) To answer your question, the first question, actually let me address the global sourcing related questions first. We are beginning to introduce the global sourcing options for domestic consumers because we want to provide more diverse options for the subscribers by offering them mid to low end handsets. In the case of BlackBerries, we have already obtained the approval from KCC, Korea Communications Commission, and we are in the negotiation stage for the actual servicing aspect of it.

And also from Taiwan, we have HTC produced touch dual phone which has been already launched in the market. And we are also discussing things with Nokia and various other overseas vendors. But along with -- aside from those two that I have already mentioned, nothing has been finalized as of yet. And you asked whether there would be any differentiated subsidies for global source to handsets versus domestically sourced handsets. And the difference would be none.

Let me address your question regarding the monthly fees, or the basic fee reduction related pressures. As you are well aware, KCC or Korea Communications Commission has since been launched has pursued various positive policies such as enactment of the IPTV related regulations. And they have been promoting rapid conversions between broadcast and telecommunications. And they have been also pursuing policies to protect the users as well. And also the new government, since its inauguration, has been calling for business friendly policies. So looking at such long-term perspectives coming from the regulatory bodies we believe that more voluntary and autonomous type of competition in the market will be revitalized, and we, as the Telco's, would be given more autonomy in this aspect.

So I believe that such trend is quite vital and necessary considering the history of development of the telecommunications industry so far, as well as the industry-wide conversion to trend. And we anticipate that there would be even more elimination, or easing, of the asymmetric regulations going forward.

And also I believe that there are such efforts as reducing tariff for low income subscribers is being discussed. And on top of that there will be other types of voluntary tariff reduction opportunities that would be offered to the Telco's.

So I think such effects will take place beyond second half of this year. So, since all these efforts are really ongoing as we speak, we believe that very minimal, if any, pressure will be expected in terms of artificial reduction of tariffs.

To answer your question about Vietnam, as (inaudible) is doing its operation in Vietnam, and as you have pointed out, Vietnam is going through certain difficulties in terms of increasing trade deficit as well as rising inflation.

However, the country as a whole, if you look at the short term external debt as well as FX reserve, I believe that they are sound enough that we don't have to be too concerned about a possible economic crisis that we have seen in the past.

So I believe that Vietnam still remains a very attractive emerging market nevertheless That is precisely why major global Telco's around the world are looking for further opportunities in the mobile telephony market in Vietnam as we speak.

And S K Telecom is doing its part by preparing for the issuance of a 3G license in the near future. And we are trying to attain the critical mass so that we can play a leading role in the anticipated consolidation in the market.

And I believe that you were asking the reasons why our monthly fees income is increasing. And it is mainly due to a particular product price plan that we launch called the (spoken in foreign language), which means more the merrier is the direct translation of the program. And it tends to have higher monthly fees as the basic fee. However, it comes with a multi-array of benefits that quite differentiates it from other price plans.

And because of the increasing number of subscribers to that particular price program it seems like our monthly fees in general is rising.

Thank you very much.

(Interpreted). The following question will be presented by Mr. [Kim Doe from GIC], please go ahead with your question.

Hi, good afternoon. Thank you very much for the call. I've got two questions, one on churn rates and one on the US. The first question on churn rates, would you be able to give me an indication of where you would hope your churn rates to come down to during 2009, if your future bundling and retention strategies are to be labeled successful internally?

Alternatively if your churn rates remained above 3% during the remainder of that year -- of this year, would that force a rethink of your current retention strategy?

Secondly question is just on the US. Could you just explain whether there are any lessons to be learnt from the Helios experience that you would be able to apply to any new acquisition, whether it's in the US or elsewhere? Thank you.

(Interpreted). Let me address your second question first regarding the lessons learnt from the Helios experience. We believe that the US market is a leading global telecommunications market with a very advanced, highly sophisticated, high quality subscriber base. And we believe that the US market is a very strategic hot market in our globalization strategy.

During the past two years we have gained a certain level of industry position as well as know-how and assets. And now that we are able to merge with the scale of Virgin Mobile I believe that we will be better positioned to overcome various challenges in the mobile telephone industry and, therefore, to grow stably going forward.

And ultimately because we have gained certain subscriber related information as well as the market knowledge about the US, we will not only apply it in the US market but we will be able to come up with various business models and apply it in other types of MNO operations perhaps in other regions as well.

So we do not simply regard it as a short term endeavor, but also a long term opportunity seeking type of lessons of that we have gained.

And to answer your question about the churn rate, we have introduced lock-up contracts, which have mandatory subscription periods for the subscribers. And subscribers subscribing to such plans is increasing as well as other types of retention based price plans.

And also going forward we anticipate that the market will stabilize even further, bringing down the mobility of the scribers between Telco's. And together with that sophisticated service offerings and customer satisfaction (inaudible) to buy S K Telecom will ultimately lead to brining down the trend rate, down to the 2% ratio within the next year.

But, of course, there might be some leeway depending on the competitive landscape changes that we anticipate in the future as well. But that is basically the direction.

The following question will be presented by Mr. (inaudible) from [Cheuvreux]. Please go ahead with your question.

Hi, I have two questions one of which is to actually get understanding from the potential impact of the need to share the bandwidth in the event you have to at the end [whether or not] you have to share all your -- you have to share your (inaudible) bandwidth.

That's one, and the other is actually on your interest to invest in China and the US. I am just wondering in terms of the size of acquisition would you keep the size of acquisition within your internally -- generated cash flow, or your cash balances. Or would you actually leverage up to fund for the acquisition? That's all from me.

(Interpreted). Let me first of all address the possible sharing of our [current] 800 megahertz bandwidth. I believe that when it comes to mandatory sharing of a particular bandwidth for roaming purposes its usually offered for a freshly new entrant into a market in order to facilitate competition in the beginning stage. So the very basic intent of such a [pro-ban] would be very temporary [boosting] for the new entrant.

So in no country can you find a case where a telecommunications operator with more than 10 year experience would be offered a roaming through sharing of a bandwidth of another competitor's network.

And I believe that any basic telecommunications carrier in a particular country should make the necessary investment in order to create benefit for the customers and generate revenue from, and reinvest that. So that should be the virtuous cycle in any such industry.

So in order to facilitate such virtuous cycle of the telecommunications industry in Korea we believe that such mandatory roaming related pressure should definitely be considered. And also we believe that our competitors, when offered such roaming opportunities, will not be simply using it to enhance customer convenience but they might be actually misusing it as a marketing tool of some type.

And for your information Korea Communications Commission on July 8, had a meeting in which they decided that the decision on the roaming issues on the 800 megahertz bandwidth would be delayed until the end of this year, because they will be further discussing the recovery and redistribution of 700, 800 and 900 megahertz bandwidth at the same time. So only after such decisions are made they will make the final decision on the roaming.

And on July 22, FTC, Fair Trade Commission has rejected the opposition filing. But as you are well aware, as you know, since KCC has postponed the decision on the frequency sharing issue, I doubt that L G Telecom would be aggressively pushing for the roaming allowance early on before such a decision is made.

Regarding your second question about the size of the investment possibly, it all depends on the timing and what type of business opportunities we are dealing with. Therefore, it's quite premature for us to give you a definite answer as to we would go with one way or another.

However, let me reassure you that we will make any such investment decisions based on the fact that we will still be able to maintain sufficient financial stability.

This will be our last question, the last question will be given by Mr. John Kim from Merrill Lynch, please go ahead with your question.

Yes, thank you for the opportunity. I have two questions, fist pertains to Hanaro. It's not difficult to understand how Hanaro will benefit for its business prospects by ownership of SKT.

However, from SKT's perspective are there any benefits that SKT can gain from its ownership of Hanaro for SKT's own wireless business? Will this be confined largely to improved retention rates? Or are you also looking to gain more market share in your core wireless business?

Second question is a general question about the state of the wireless market. Over the past two years SKT's management has advocated that maintaining 50.5% market share would be necessary to sustain market stability. But if we look back over the past couple of years the market intensity actually has worsened.

So in your view, is there anything else that SKT can do to restore a more rational market environment? Or do you now believe that the outcome of the competitive intensity is totally dependant on your competition? Thank you.

Let me address your question about Hanaro Telecom. As I told you earlier depends -- the environment in the technological and regulatory environment is changing rapidly so that we see higher market growth coming from the bundled market and also fixed mobile convergence market as well.

Against that backdrop simply relying on mobile telephony services could impede our competitiveness in the bundled product competition environment. That is why we have decided to acquire Hanaro Telecom. And also we believe that by accessing the fixed line market we will be able to create a lot of [synergies].

To name a few, first of all we begin to enjoy higher retention through our subscribers subscribing to bundled services. And secondly we will be with the shared distribution channels. Thirdly through co-marketing we could enhance the cost efficiency of marketing expenses. And fourthly we could jointly cross-lease networks from each other. By doing that we could reduce the CapEx burden, and at the same time secure a very stable network supply.

And also simply utilizing our mobile telephony services we have very limited access to home market, in other words household markets. However, by adding the fixed line capabilities as well as IPTV I believe that our content business can also enjoy growth momentum as well by linking it with IPTV services provided by Hanaro.

To answer your second question regarding market share policy -- to address your question about the 50.5% market share related policies, as you are well aware since 2004 there was a phased MNT which was allowed. And as a result our market share in the market has been dropping quite a bit.

And during this time period late entrants into the market began to spend enormous amounts of marketing expenses to secure a bigger share in the market. And that has led to a very vicious cycle in the market, raising the overall market expenses for all the Telco's. And we felt that we needed to break that vicious cycle.

At the same time we needed to regain the market leadership and ensure long term profitability. That is why we have initiated a 50.5% market share policy. And we plan to continue with that policy going forward.

Now if you look at it from a simple number perspective you might think that in order to keep and defend the 50.5% range we might be spending too much marketing expenses. But if you look at it at, the moment we begin to have lower than 50.5% market share our market share deterioration rate can be quite speedy and also we could end up loosing the market leadership. And such was an example that we saw quite drastically in Japan through the case of NTT DOCOMO.

Additionally, we believe that there has been a lot of strategic results for the market share policy of 50.5%. SKT was able to provide various differentiated value offerings to our subscribers. And we were able to utilize our fundamental competitive edge.

And gradually we are beginning to see a lot of synergies (inaudible) case. And I believe that our competitors are fully aware of our commitment and conviction to defend our 50.5% market share.

Now in the case of Q2 there was very heated competition in the market. However, the main driver was not a competition for the market share per say but rather because our competitor was pursuing an all-in policy for the WCDMA migration.

So, once we being to see pretty much all the migration taking place into WCDMA in our competitions position, which is second half, we believe that such overheated competition would subside.

(Interpreted). This concludes the Q&A session. We will invite any closing remarks by our CFO Kyou Bin Lee.

[Interpreted). Thank you very much for taking part in today's conference call. All your valuable comments and questions will be used in our future management activities at S K Telecom.

And as I told you before by leveraging stable subscriber base and accumulative competitiveness we will do our best, and we are doing our best to grow and achieve profitability both home and abroad. And I ask all the shareholders and analysts for your continued interest and support in S K Telecom's efforts to achieve such goals. Thank you very much.

This concludes the earnings conference call for the second quarter 2008. Thank you very much.

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.