SK Telecom Co Ltd (SKM) 2009 Q3 法說會逐字稿

(Interpreted). Good afternoon. Today's conference call will consist of the earnings presentation on the third quarter 2009, by SK Telecom's CFO, Dong-Hyun Jang, followed by a Q&A session. To assist with the call, executives from MNO and CNI will also attend the conference call.

The conference call will proceed with consecutive interpretation. Let me also remind you that all the forward-looking statements are subject to change, depending on the macro economic and market conditions.

Now, let me present our CFO, Dong-Hyun Jang.

(Interpreted). Good afternoon. My name is Dong-Hyun Jang, the CFO of SK Telecom. Thank you for taking part in today's earnings conference call for the third quarter 2009. Let me begin with the earnings highlights for Q3 2009.

Revenue for the third quarter marked KRW3,056.7 billion, expanding by 5.4% year-on-year; supported by the subscriber number increase. On a quarter-on-quarter basis, it edged down by 0.4%, due to the reduction in sign-up fees from less number of new subscribers, among others.

Wireless Internet revenue stood at KRW662.4 billion, which grew 7% year-on-year from increasing number of data fixed price plan subscribers. It came down 1.3% quarter-on-quarter, due to the one-off provision related revenue in Q2, which did not occur in Q3.

Marketing expense went up by 14.6% year-on-year, to KRW834.1 billion. Whereas the market in the same period last year experienced a rapid cooling down, Q3 of this year was marked by overheated competition until July, leading to a relatively higher marketing expenditure compared to '08. However, the market stabilized after August, bringing down the marketing expense by 12.1% quarter-on-quarter. The marketing expense to revenue ratio was 27.3%.

Operating income rose 22.7% year-on-year, and 11.8% quarter-on-quarter, to KRW618.8 billion. Despite the increase in marketing expense, the revenue expansion and other cost cutting efforts led to a significant increase in operating income year-on-year. The quarter-on-quarter increase came from the reduction in marketing expense.

Net income recorded KRW415.9 billion, which was a 24.7% increase year-on-year and a 33.5% increase quarter-on-quarter. EBITDA marked KRW1105.6 trillion.

The CapEx for the quarter, mainly involving the WCDMA capacity expansion and quality enhancement investment, amounted to KRW287.8 billion. On an accumulated basis, the total CapEx to date for 2009 was KRW955.2 billion.

Let me now move on to the management environment outlook and strategic direction going forward.

As mentioned earlier, the mobile telephony market gradually cooled down during Q3. We expect such market stabilization to continue until the year-end. Against such backdrop, SK Telecom plans to refrain from overheated competition, while focusing on fundamental competitiveness, such as customer experience management. However, we will continue to ensure market leadership by actively responding to possible market competition, spurred by various market factors.

In September, SK Telecom announced various tariff reduction measures, such as tariff cuts for long-term subscribers, introduction of per second billing, sign-up fee reduction, prepaid tariff cut and reshuffling of the wireless Internet fixed price plans, among others. The impact of such tariff cut measures on the Company's revenue will not be insignificant.

However, I would like to remind you of our past track record in delivering continuous growth amidst various tariff cut decisions. Likewise, SKT will continue to minimize the impact from the tariff cuts and seek continuous growth by expanding customer retention and usage, while further focusing on new growth engines, through efforts such as development of convergence products and new markets.

As a way to securing new growth engines, SKT launched TStore in the beginning of September, to keep abreast with the global trend of expanding usage of smartphones and app stores. TStore successfully differentiated SKT from other competitors, by broadening the target customers to existing handsets, as well as smartphones.

In the meantime, 11th Street exceeded KRW1 trillion in accumulated transaction amounts at the end of Q3 '09, cementing its position as a major player in the e-marketplace in such a short period of time. 11th Street will continue to offer differentiated customer service based on trust, while focusing on becoming a top tier player, through diverse services and effective marketing.

Leveraging our ICT technology, SK Telecom will further expand the corporate customer base and secure new growth platforms, by launching products that target customer needs and contribute to productivity enhancement in other industries. SKT will continue to abide by the principle of start small, scale fast, in the process of implementing this growth strategy. We will also put communications with our investors at the top of our agenda.

Since the inauguration of our new CEO, SK Telecom has been conducting comprehensive reviews on the strategic values of our investment assets. As a result, we decided to sell the shares of China Unicom, along with the shares of SK C&C.

With the changes in our growth strategy, we plan to secure liquidity from our existing investment assets, to maintain the stability of the financial structure and utilize the financial stability to further fuel mid to long term R&D efforts, to strengthen our ICT competitiveness. SKT will continue to do its best to better utilize our investment assets, to align with the Company's strategies.

Lastly, let me turn to our shareholder return policy. As was communicated in the beginning of the year about the 2009 cash dividend, we plan to maintain last year's level of dividend, including the already paid out in term dividend of KRW1,000, barring extraordinary circumstances.

Regarding other shareholder return measures, the BOD plans to flexibly reach decisions after considering factors such as management environment.

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

(Interpreted). (Operator Instructions). The first question will be provided by (inaudible) from (inaudible) Securities. Please go ahead, sir.

(Interpreted). First of all, congratulations on your good results. And I have the following two questions.

First of all, I have a question about the FMS product. When comparing against KT's SMC product, how does it compare in terms of strengths and weaknesses? And relatedly, what is the purpose of launching this FMS product, fixed mobile substitution product? Is it for the benefit of the users or mainly to actually compete against a competitor, since they have proposed a similar product? And relatedly, if you have any targets for FMS subscriber number for 2010, we would appreciate that as well.

And the second question is as follows. Today, your SKT CEO has held a press conference, in which he mentioned that he plans no imminent M&A with SK Broadband, and that such an M&A will not take place in any time soon. But recently, if you look at the industry trend, following KT's merger with KTF, LG Group is pursuing their three-way merger as well, combining fixed and mobile operations altogether. So, how does SK Group differ from KT and LG in this regard? And why is KT so conservative about a possible merger with SK Broadband?

(Interpreted). Yes. Let me first address your second question regarding a possible merger with SK Broadband. And the first question regarding FMS will be answered by Mr. Tung Sup-Chi, the Head of MNO Division.

Regarding the merger with SK Broadband, as you have seen, following KT's merger with KTF within this year, SKT has responded in a very consistent manner so far. Our position has not changed, in that without conducting a merger with SK Broadband, we seek to continue to drive synergies between fixed and mobile operations between the two entities going forward.

And the reason why we are not pursuing an imminent merger with SK Broadband is not because we are far, far different from groups such as LG or KT, but rather because we are not able to identify significant competitiveness enhancement opportunities, or additional synergy creation opportunities, through such a merger with SK Broadband in the near future. And also, looking at this year's market environment and also our competitive position in the market, again we do not identify too many factors leading to further synergies by going through the route of merger, at the moment.

And to elaborate a little bit more, as mentioned by our CEO in the press conference this morning, we are in a position that, in the current domestic market, in the telecom industry, we cannot simply pursue the quantitative competition in the market, trying to conduct competition, therefore generate extra profit in that regard. But rather, we believe that it is time for us to focus more on the qualitative competition, focusing more on the customer centric views.

Therefore, our growth strategy involves B2B business expansion through IPE or industry productivity enhancement growth strategies, and also globalization strategies as well. So at the moment we are trying to focus on those matters, rather than seeking a merger with SK Broadband.

(Interpreted). I am the Head of MNO Division and I would like to talk about your first question, regarding our FMS service.

Regarding our FMS launching, in dealing with SMC launching by our competitors, we're not trying to simply deal with a competition by launching this product in order to gain more market share per se. But rather, our focus is to further enhance the customer benefit. And I believe that this is a global service trend.

Regarding SMC, this is a type of service that was already launched by many global markets around the world, centering on the corporate customers, focusing more on specific zones with low cost routes. So, when there are existing wired Wi-Fi zones that exist in certain areas, then they're trying to make the fixed lines available, so that they could replace certain mobile telephony needs.

And I believe that this type of a service was already made available since the beginning of 2000 and it has been a trend, focusing on the global corporate customers with this technology. And therefore, the recently launched FMC product by our competitor should be interrupted as an extension of the existing corporate customer centric FMC products now expanding to the home zone.

Now regarding FMS product, Fixed Mobile Substitution and this is a new trend globally, mainly deriving some of the European countries. And actually rather than fixed line competitiveness those players with wireless mobile telephony strengths are launching this type of a product because this service enables replacing fixed line traffic with wireless traffic type of a mechanism. Through which we could further help reduce the telecommunication expenses and it has begun by entities such as European DT and we have been preparing for this technology for a long time and we are now launching it.

And if I may give you some comparisons between FMC and FMS, now first of all regarding FMC, it operates centering around the AP installation within the home, and AP stands for Access Point. And within that radius of an area one could access the service with a local call tariff and same thing applies to the office areas. You have to have an AP within the office and within the radius of that area you could get the local call charges.

On the other hand FMS has to do with a nearby base station so it is a wider area within a certain radius around a certain base station and within that particular area or zone one could get access to a telephony services for less cost than the local calls. And also, depending on the needs of the subscribers the subscriber could appoint two to three such zones at the same time. So that's the comparison that I can make about the services.

And another comparison is that in the case of FMS we don't have to replace handsets to use this service and existing handsets can be utilized. And in order to assist in the convenience all the subscriber has to do is to register for additional services; whereas FMC involves a separate dedicated handset for the VoIP services. Therefore, you have to replace the handset and also you have to subscribe to a VoIP service subscription at the same time.

And the last comparison I could make has to do with the quality. In the case of FMS in and out of the zone easy hand-off is supported in terms of telephony services, because mobile base stations are still operating to support the hand-off. But FMC, in the FMCs case hand-off support is quite difficult between the VoIP phones and the mobile telephony, so that's another difference.

And lastly we do not have a particular subscriber number target for year 2010.

(Interpreted). The following question will be presented by Stanley Yang from Nomura Securities. Please go ahead sir.

(Interpreted). Well this morning there has been a press conference in which CEO, Jang talked about SAT's ICT strategy with a long-term prospective and he mentioned that he will be investing in the core areas relating to ICT going forward.

And now he has given us specific numbers with regards to the revenue targets as well and he mentioned a target of reaching KRW40 trillion by year 2020 of which KRW20 trillion is allocated to B2B and another KRW20 trillion allocated to B2C.

And he also talked about already been completely ready to launch products in a year time and that he's targeting the revenue in the years time of amounting to about KRW1 trillion.. And he mentioned the revenue increase possibly within the next five years up to KRW5 trillion. That's what I read in the articles this morning.

And so from next year on should we actually try to analyze and include the B2B business in a very sizeable manner when compared to the telecom core businesses when we do the analysis on the Company's earnings?

And the second question has to do with the investment involved with such new business. Aside from the existing core network related investment, should we expect other types of investment for this new type of business going forward?

And also how do you foresee the profitability of this new business?

(Interpreted). Yes, let me first address your question regarding the new growth strategy that was announced by the press conference this morning regarding SKT's strategy to launch IPE or industry productivity enhancement as a new strategy.

During the past six month period SKT has been focusing a lot on this new concept of growth strategy called IPE by having in-depth dialog and business plan discussions with various players from eight major industries that we are trying to target.

And not only do we have progress talking to domestic players, but also with global major players as well. And during such discussions we were able to identify numerous positive business opportunities and potential. And as a result we were able to communicate this new growth strategy and the vision with the members of the press this morning through the press conference.

And such a progress will be fully reflected in the business plan for next year that we are currently working on. And we will be utilizing various methodologies to implement such strategy.

And for your information this new growth strategy of IPE is not the type of business than entails large network investment as we have seen in the telecom business. Therefore, even if we try to implement this growth strategy immediately it will not entail large scale CapEx investment and at least that's a perspective that we have currently.

And going forward we will continue to work very hard to communicate fully through various channels available regarding the evolution of the IPE growth strategy of our Company.

(Interpreted). The following question will be presented by Sam Min from BNP Paribas. Please go ahead sir.

Hi thank you, I'll keep my question simple. Firstly, on your recent tariff cut announcement, how do you think this will impact your ARPU next year? Also, do you think that Government pressure will now ease going forward?

Secondly, on marketing competition you mentioned that through the remainder of this year you think competition will be eased. Could you provide us an outlook for 2010 on the backdrop of LG Telecom merger? Do you think that wireless competition will intensify because of the merger or vice-a-versa? Thank you.

(Interpreted). Let me first address your question regarding the tariff cut and its impact on ARPU and also regarding the regulatory risk going forward. And then the question about the marketing competition outlook for next year it will be addressed by the Head of MNO division.

I believe that the recent tariff cuts will definitely have a big impact, which can be felt by individual subscribers and we hope that it will continue to lead to customer satisfaction enhancement. And naturally, the Company is trying to draw up the business plan for next year. And as we have that discussion we are trying to identify ways to make up for such revenue reduction in the process and how we could go about doing that.

But as you can see from our past experiences I believe that we could conduct various measures and activities such as reinforcing and reactivating a wireless Internet usage by the subscribers. And by having higher cost of subscriber retention, we believe that we could sufficiently make up for any revenue loss coming from the tariff cuts and we're quite confident about that.

And regarding your question about the future regulatory outlook regarding the tariff cuts in the future, SKT has made this very bold move after a long and hard thinking about this matter. And we believe that in the long run it will definitely ease any regulatory pressure on the operators and that's what we expect as an operator. And also, in the short run as well we do not foresee any immediate significant regulatory pressure that could possibly -- that we have to face.

(Interpreted). I'm the Head of MNO division and let me talk about the other question you have raised. Following KT, LG Group is launching a three-way merger between the entities in the telecom sector. And with that merger completed I believe the three major companies with scale of economy will be having a competition. And in the domestic market we will quickly transition towards a competitive landscape in which fixed mobile integration will be the main theme.

Regarding the outlook for 2010 I believe that for the following four reasons we expect less heated competition in the marketing area and we believe that competition will be quite stabilized going forward for the following reasons.

First of all, because of the increasing number of lock up contracts for the subscribers, the subscribers' mobility will be significantly reduced.

And secondly, as the fixed mobile integration or convergence structure becomes more strengthened or stabilized I think that there will be more competition focusing on the bundled subscribers as well as the retention side. Therefore, all in all it will further reduce the market competition.

And thirdly, all three telcos are focusing on the smartphone penetration increase, which will definitely further grow the overall pie of the data telecommunications market and I think that all three players are putting in a lot of efforts in order to growth the pie for the entire market.

And fourthly during the past three year period all three players have experienced the heated market competition and therefore we have gained a lot of lessons in this regard. So for those reasons I believe that the intensity of the marketing competition will only reduce going forward.

(Interpreted). The following question will be presented by (inaudible) from SK Securities. Please go ahead sir.

(Interpreted). I have the following questions. First of all, regarding the LG Group merger there was some reports that SKT could propose an opinion to the Fair Trade Commission. So if so, what type of opinions are you planning to propose?

And secondly, regarding the 800 megahertz reallocation and 2.1 gigahertz allocation how is that proceeding and more specifically are you planning to apply for further allocations for the 2.1 gigahertz as well? And if so, how much additional expense or less expense do you expect going forward?

And thirdly, I believe that recently the interest bearing liability has increased to about KRW1.8 trillion recently and it could possibly lead to more interest expenses. So what is your target for interest bearing liability total by the year end and is there a way to reduce that liability level? If so, how do you plan to do so?

(Interpreted). Regarding SK Telecom's official opinion regarding LG's three way merger, we have not communicated that opinion officially to the market as of yet, but our basic stance is as follows.

Now that LG Group will be merging all their telecom related companies, and I believe that as a result, the telecom industry will be formed in a three way structure where all three operators will have scale of economy. So we would be able to compete at par with each other going forward.

If so, I believe that this is about time that existing asymmetrical regulations that have been imposed upon SK Telecom in the past should be changed in the future. So it is time for us require a new framework for regulations we believe.

And regarding your question about the frequency allocation, we have not been given any specific guidelines as to the specific allocation plans by the government yet. Therefore, once the Government confirms such detailed guidelines, then SKT will decide whether or not we will take part in any allocation scheme in the future.

And for your reference, regarding the allocation related payment which is required, I believe that according to the Frequency Act of Korea, I believe that it would be around 3% level against the revenue of that particular operator, but we still need to check whether that figure still stands.

And regarding your question about the interesting bearing liability, as of the end of September, we have seen a temporary surge in terms of liability because of the acquisition of SK network's release line. So this was a temporary hike.

And once China Unicom related shares sale is completed as planned, we expect an inflow of KPW1.5 trillion. So all in all, I believe that we will be able to manage our financial stability without any problem.

(Interpreted). A follow-up question please. If the Government decides to allocate 2.1 GHz, do you have plans to take part?

(Interpreted). Of course, naturally SKT will be reviewing various possibilities and we will look at the impact on the Company as well as the marketing plans when we make the final decision. But as I told you before, since the Government has not finalized the allocation plan in the first place, it's not -- I believe it's too early for us to comment about this.

(Spoken in Korean).

(Interpreted). The following question will be presented [Kim Dong-Jung] from [Eugene] Securities. Please go ahead sir.

(Interpreted). I have a follow-up question on the FMS related question. I find certain actions quite puzzling so far, because SKT has already conducted quite a bit of tariff cut measures. And against that backdrop, how should we offset the fact that SK Telecom is now focusing on FMS, which could further bring down the tariff?

And actually regarding your subsidiary, SK Broadband, since they are operating a VoIP services right now, your FMS service launching can go directly against their aggressive marketing efforts for VoIP. And how are you coordinating with SK Broadband at the moment in order to further minimize, I guess, impact on their fixed line services?

And thirdly, regarding mobile Internet, I believe that that's been cited as one of your growth momentums going forward, and, of course, with the rapid growth of the wireless Internet, I believe that there needs to be more installations of the access points or Wi-Fi has to be reinforced.

And against that backdrop, you are focusing on FMS. So that's the part I don't quite understand all the way, so even linking it all the way to WCDMA, I'm wondering whether you have plans to further invest into the Wi-Fi and other such areas. In other words, are you going to simply focus on FMS going forward? Or are you also opening up the possibility of entering into FMC as well?

(Interpreted). Let me start answering your question by explaining the background of the launching of FMS.

We have been introducing various tariff schemes and in the process, we have benchmarked other European countries and other countries around the world. Of course, in the past, we had previously launched a product such as a TTL zone which is zone based, a tariff-to-tariff plan. However, this is an evolution from that scheme because now the subscribers could appoint and designate certain zones themselves, so this is seen as an evolution of the existing services. So we have been preparing for this service for a long time and now we are launching it.

And secondly, you talked about a possible collision between our FMS service and SK Broadband's VoIP service. Of course, it is possible that such a launching of FMS service could have some impact on the VoIP business' revenue. However, by strengthening the product competitiveness of SK Telecom, we could further pursue various products in a bundled form with SK Broadband and it could further increase the number of Internet broadband service subscribers for SK Broadband. So I think that we could expect further positive outcome as well.

And you also asked the question as to whether we have plans to invest in the Wi-Fi category and also whether we have plans to expand from FMS to FMC in the future. At the moment, SKT has no plan to invest in the Wi-Fi category and also, naturally, we don't have plans to expand into FMC at the moment.

Therefore, on the voice side, we plan to focus on the FMS, and on the data side, we hope to further enhance and expand the data network in order to utilize our existing mobile telephony data network.

(Interpreted). The following question will be presented by Neale Anderson from HSBC. Please go ahead sir.

Thank you. I have two questions following-up again on the wireless data growth that you've seen year-on-year from subscribers moving onto flat rate plans.

Firstly, if you could clarify what exactly is driving this? What I'm interested in is whether it's demand from your customers, perhaps driven by increased take-up of smartphone, or whether you see it as more related to increased marketing of these flat rate data plans by SKT?

Secondly, you mentioned the main focus of your capital expenditure at the moment has been wide band CDMA expansion. Could you comment on network utilization, particularly with regard to data? The reason why I ask this is that SKT CapEx at around 10% of sales is lower than industry peers and particularly those that are seeing strong growth in data traffic, which often requires additional investment in expanding data capacity as well as coverage. So if you could comment on that as well, that would be great. Thank you very much.

(Interpreted). Your first question regarding the wireless Internet related data traffic increase or the revenue increase that will be addressed by the Head of MNO.

(Interpreted). I believe there can be three reasons behind such increase in usage of data services for wireless Internet.

First of all, as you have mentioned, there has been more penetration in terms of smartphones and also feature phones, especially touch screen phones, have bigger display screens, therefore, those screens make web surfing more easier to conduct. Therefore, with more penetration of touch phones, I believe the data fixed priced plan subscribers has increased accordingly as well.

And secondly, I believe that the data fixed price plan tariff has been coming down quite a bit and it has led to more take-up on the part of the subscribers as well. The comfort price plan, which was offered previously at KRW15,000 has been introduced again, and a KRW10,000 category as well, and gradually, we have been lowering the tariff for wireless Internet usage overall. So I think that such tariff reduction efforts have led to more take-up on the part of the subscriber.

And thirdly, we have recently launched integrated price plan comprising data call charges and information usage fees and I think that has alleviated burden on the part of the subscribers regarding the information usage fees, so that has also led to bigger take-up.

(Interpreted). Let me now talk about your second question regarding the increase in usage of data services and the load on the network as well as our CapEx plan going forward.

As we launched the data zone free price plan in the month of July this year, we had numerous internal discussions about a possible load on the network and we made numerous estimations about the load on the network, so to date, we have conducted various verifications and validation process as well.

For your information, the recently launched data zone free price plan has seen a bigger than expected outcome compared to our previous expectations in terms of the subscriber number increase and the further reduction of churn rate.

And of course, depending on what type of services are taken up more by the subscribers, the load on the network might differ slightly. However, at the moment we believe that the current capacity we have on the WCDMA network is sufficient to support these data services. And also, in the future, I believe that according to our validation process, the network capacity is currently sufficient to address future demands as well.

And going forward, of course, SK Telecom will continue to drive more expansion of the usage on wireless Internet services and more usage of the data traffic as well. And if needs arise we will be making the necessary network capacity increase as well. However, at the moment, the way we look at the situation, I don't think that we will be making enormously large investments in terms of network upgrade or expansion anytime soon.

(Interpreted). The following question will be presented by [Kim Han Joon] from Goldman Sachs. Please go ahead sir.

Great, thank you very much. The first question that I have and I just want to clarify this a little bit better in terms of what the CEO mentioned this morning in the press, and your IPE strategy. Is this really ultimately, and you refer to guys like Cisco and IBM, so is it correct to assume that you guys want to get into the business solution business? And if yes I have a follow-on question to that.

(Interpreted). At the moment we believe that we have definitely necessary components in order to realize the IPE strategy. And of those components is one -- well, one of those components is the business solution part of it. Of that solution, of course some elements will have to be developed internally by us, but some will involve external alliances as well. So we have very diverse ways through which we could realize this strategy.

So it's not a matter of whether we are entering into the business solution industry or not, but rather it is completely up to us to best develop and deliver the most effective total solutions to assist and support other related industries.

Okay. In that case, could I just get a better sense of where the CEO mentioned the fact that there could be about KRW1 trillion revenues next year? It seems like at the current juncture there is a lot of still moving pieces; strategy still needs to be set. But just some confirmation level or some comfort level from the CEO that he's going to give out certain guidance, or a certain perspective on revenues? So I just want to get a better sense of how we get to that KRW1 trillion revenue for next year?

(Interpreted). Well, first of all regarding what our CEO has said this morning, I would like to remind you that our CEO has been leading personally, the taskforce team for IPE related initiative. And he has the necessary insights regarding the business size and the expected performances in this category.

And as I told you before we are conducting in-depth discussions with eight particular industries at the moment. And of course, case-by-case some cases would materialize sooner than others. But for next year target, it is for us to commit ourselves to this target, and internally we do believe that it is do-able. So it's not whether such a target can be met, is it possible or not? But rather our stance is that we must achieve such targets.

Okay, just I guess two quick final questions then. The first one is, how involved is SK C&C in part of this and do they have the technical, or technology capacity to support the Group's initiative into this?

And the second one is a separate issue. You mentioned that with LG Group's merger -- potential merger that it should help alleviate or it technically should help alleviate some asymmetric regulation. What asymmetric regulation do you feel that has been disadvantaging as SKT thus far and subsequent removal could actually help you compete better in the domestic market? Thank you very much.

(Interpreted). Regarding the role of SK C&C in this overall approach, with regard to ICT or IT technology, I believe that definitely SK C&C will have a role to play.

However, if you look at the big picture of IPE strategy, various players will have to collaborate to create synergy necessary to reach further value creation. So in that overall picture I believe that SK C&C can and also should have a major role to play.

Regarding examples of asymmetrical regulations that I was mentioning in the context of the LG three-way merger, I guess one example I could give you would be the differentiated cost factor, such as interconnection fees and frequency usage fees which have been implemented differently for different players in the market so far.

(Interpreted). The following question will be presented by Hyun Taek Lee from Morgan Stanley. Please go ahead sir.

(Interpreted). I have the following three questions. First of all you have acquired SK Networks leased-line portion. So how will that impact the operating income and net income for the fourth quarter this year? And also how will that impact your earnings for next year as well? So if you could provide us with that guideline that would be appreciated.

And secondly according to your new, I guess, approach, 50% of your revenue will come from the domestic market and 50% from the overseas market in order to reach the revenue of KRW40 trillion by year 2020. So could you be specific about your global business potential which could bring about such a revenue?

And thirdly regarding CapEx expenditure, it seems up to Q3 your spending on CapEx has been quite minimal. So what is your plan for CapEx expenditure for Q4, and can you also give us the guidance for the entire year as well?

(Interpreted). Let me first answer your question regarding the impact of acquisition of SK Networks leased-line networks. We don't have all the detailed numbers for Q4 as of yet, but for one thing, when it comes to the existing leased-line expenses of KRW300 billion now that will be reduced in terms of the cost for us.

And considering the revenue and operating expenses of the leased-line business itself, I believe that we will be safety able to meet the EBITDA target of KRW250 billion in terms of the impact.

And your second question regarding the global revenue potential for IPE strategy, along with the IPE taskforce that we have been running during the past six months, we have been also running another taskforce called the global market research taskforce for the same period as well. And this team has been doing a lot of research on the potential markets globally and they have been contacting and having discussions with major players in the relevant industries in those countries.

And according to our assessment we see great potential in those areas. And as you are well aware, with regard to IPE potential, compared to the domestic market, I think that globally we have more potential as well. So we do have high hopes that a lion's share of our business will come from the global market.

Regarding CapEx expenditure, as of the end of September, the total CapEx expended was KRW950 billion. And of course, we will have to wait to complete the fourth quarter to give you the final results. But I don't think there is a high likelihood that on a year-on-year basis we will be showing a bigger CapEx number than the previous year. So it will be almost at the level of last year or less. So we have very little chance of going beyond the level of last year's CapEx.

(Interpreted). One follow-up question please; if you look at the CapEx number for Q3 the amount was KRW280 billion. So did you not reflect the SK Networks leased-line acquisition as a part of CapEx? If not, then how did you reflect it accounting wise?

(Interpreted). With regards to the acquisition of the Networks -- SK Networks leased-line, because it is a type of business transfer agreement it does not fall under the category of CapEx expenditure.

If there are no further questions we would like to conclude the CFO conference call for the third quarter 2009. Thank you.

(Interpreted). It's the end of the conference record.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.