SK Telecom Co Ltd (SKM) 2009 Q4 法說會逐字稿

(Interpreted). Good afternoon. Welcome to the conference call for the fiscal year 2009 fourth quarter earning results by SK Telecom. This conference will start with a presentation followed by Q&A session. And now we'll begin the conference of the fiscal year 2009 fourth quarter earning results by SK Telecom.

(Interpreted). Good morning and good afternoon. Today's conference call will consist of the earnings presentation on the fourth quarter 2009 by SK Telecom's Global Management Service CIC President Ki-Haeng Cho followed by a Q&A session. To assist with the call executives from other divisions 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 macroeconomic and market conditions. Now let me now present our President, Ki-Haeng Cho.

(Interpreted). Good afternoon. My name is Ki-Haeng Cho, the President of GMS CIC. Thank you for taking part in today's earnings conference call for the fiscal year 2009. I would like to extend my appreciation to all the investors and analysts for your unwavering support and encouragement for SK Telecom. And I wish all of you health and happiness for year 2010. Let me begin with the major earnings highlights for 2009.

Amidst the challenging environment of overall economic downturn and tariff reductions in 2009, SKT has achieved growth in both revenue and profit. Revenue for 2009 rose 3.7% year-on-year to KRW12,100b. It was resulted from the increase in subscriber numbers, expanded premium monthly fee plan subscriber base and the growth of the wireless internet despite the tariff reductions and expanded scope of discount price plan.

While the marketing expense gradually trended lower during the second half, the intensifying competition around the time of KT merger led to a 6.1% increase year-on-year to KRW3,250b. The marketing expense to revenue ratio stood at 26.9%. Operating income went up by 5.8% year-on-year to KRW2,180b despite the above mentioned competitive landscape. Thanks to the revenue growth and other cost saving measures EBITDA grew by 5.1% year-on-year to KRW4,210b. Net income was at par with previous year with KRW1,290b. Including WCDMA capacity increase and quality enhancement investments, the total CapEx expended amounted to KRW1,770b.

That was the earnings summary for 2009. Let me now move on to the management plans and the strategic direction for year 2010.

In 2010 there are various factors that could have an impact in the market such as the competitive conditions resulted from the mergers of telcos and greater adoption of the smartphones. However SK Telecom plans to refrain from a war of attrition while continuously securing the market leadership through a stronger subscriber retention and enhanced subscriber quality.

In spite of the tariff reduction impact SKT will aim to achieve KRW13 trillion in revenue for the year 2010 by focusing on increasing the wireless internet ARPU and creating new revenue from the B2B market. We are expecting the total CapEx of KRW1,750b, which includes investments in the WiFi and WiBro among others. Due to many variables likely to impact the competitive dynamics we are unable to provide you with a specific guidance on the profitability. However we will do our utmost to achieve a higher level of EBITDA compared to that of '09.

During 2010 SK Telecom plans to lead the wireless internet market through efforts such as securing smartphone leadership, innovating content usage environment, investing in the data-centric network, opening up and sharing networks and supporting content development environment. As we have solidified the foundation for B2B market during 2009, we will further strengthen our efforts to enable future growth in this area.

First of all, SKT will concentrate on expanding the smartphone base and stimulating the wireless internet usage by introducing diverse mobile platforms mainly around the Android OS. We will also innovate the infrastructure for billing and subscription processing and tariff plans so that mobile content may be used more conveniently on multiple devices. Including 13 Android models, SKT plans to launch 15 smartphone models this year, which amounts to about 30% of the total handset line up for the year. We expect to supply over 2m units of smartphones within the year.

To implement the wireless internet stimulation strategy we plan to build our own WiFi network mainly around key membership partner stores and major public spaces starting from 2010. We will expand the WiFi functions to feature phones to enable WiFi usage regardless of the handset type. Additionally, by allowing side loading and increasing the number of non-DRM handsets we will enable further access to diverse contents. Through various efforts such as inviting other companies to list on our app store, we will do our best to place key store at the centre of mobile contents distribution.

As the Korean telecom industry is witnessing an accelerated Fixed to Mobile conversion, SK Telecom will further collaborate with SK Broadband to proactively grow our business to achieve the objective of becoming number one carrier, Fixed-Mobile combined by 2011. The SMS service which was launched on November 9 last year, acquired about 500,000 subscribers during the first two months. SKT will expand the WiFi coverage while offering open wireless data service going forward.

Through the recent reorganization SKT has newly established the IPE division with around 150 members. By leveraging the consulting capabilities of the IPE organization and the customer management abilities of the existing Corporate Business Division, we plan to actively pioneer in the domestic and global IPE markets through efforts such as development of global IPE business models. We have entered into an MOU for a smart learning service in the education area while pursuing the win-win solutions with partners in various industries such as manufacturing retail and healthcare. It is still too early to discuss the details at this point but I believe we will be able to share with the investors about our achievements in these areas in the near future.

Lastly I would like to touch upon the shareholder return. Regarding the 2009 dividend with the approval at the shareholders meeting as we promised, we expect to pay KRW9,400 per share, including the already paid out KRW1,000 in interim dividend. Considering the importance of the shareholder value enhancement and the Company's future growth, the top management at SKT plans to maintain a similar level of cash dividend for 2010 as the previous year, barring extraordinary circumstances.

I believe the year 2010 will mark year one of a new leap of growth. Maintaining the mid to long term growth trajectory we have built until last year, SKT will do its utmost to achieve concrete and visible growth. Lastly, I would like to thank our investors and analysts once again for your interest and affection for SK Telecom. Thank you.

(Interpreted). Now Q&A session will begin. (Operator Instructions). The first question will be provided by Mr. Kim Dong Joon from Eugene Investment Securities. Please go ahead sir.

(Interpreted). I have the following two questions. First of all, my first question is directed to the WiFi related strategy. It seems like within this year your CapEx investment will be made more aggressively in the area of WiFi going forward. So can I ask you what level of expansion you are thinking of because I believe that KT has announced that they would double the spot zones by twice as much, reaching over 27,000 spot zones for WiFi for this year. So what's the level of expansion that SKT is thinking of and what is the related CapEx expenditure that we should anticipate as well?

And I understand that in terms of WiFi investment it has to involve some types of fixed-line related investment as well. So you earlier mentioned the CapEx amount of KRW1.75 trillion. So would that include such investment in the fixed-line area as well?

And the last part of the WiFi question is the following. SKT has mentioned that you would be opening up the WiFi network to not only the subscribers of SKT but also subscribers of other carriers as well. So I'm wondering whether you are pursuing the WiFi strategy with a thought of keeping the open network strategy indefinitely or are you planning to refocus on offering the WiFi coverage ultimately to only the SKT subscribers.

The second large question is as follows. It has to do with your B2B strategy. Yesterday KT has mentioned a few things about their B2B strategy while they were talking about their short term earnings prospects. So I was wondering what differentiating factors you have against KT's strategy regarding the B2B area through which you are pursuing the IPE business?

(Interpreted). We believe that our wireless data service related strategy will continue to apply the openness related principle going forward as well. So we plan to provide more access environment through the WiFi network and we will further expand the WiFi handset line up. And through the WiFi we plan to further open up the wireless net environment as well. So accordingly we plan to establish a sufficient level of WiFi hotspots going forward.

So basically we will be building up the WiFi investment, centering around the public spaces around the major cities to the level that our subscribers will not feel any inconvenience as opposed to those subscribers of other carriers. So in short we will be limiting our investment within the total CapEx of KRW1.75 trillion that we have mentioned earlier and we will be basically leveraging our key membership partner stores around the major cities so that we could build the initial WiFi network. And we will be also utilizing Wireless WiBro backhaul, WiBro network as the backhaul for the WiFi network.

So gradually we will be expanding the hotspots for WiFi going forward. And unlike our competitors we plan to have the hotspots or hotspot zones for WiFi in which only the network certification will be or authentication will be required. Instead of the network authentication only AP authentication will be required so that any subscriber regardless of the carrier will be able to access the system. And I think that this has to do with the basic principle and the spirit of WiFi technology which has to do with openness and sharing.

To answer your second question, our position in the mobile telephony market has been as a leader in the market. And we have been focusing on the customer satisfaction and also our leverage of the distribution network and high quality of our networks. And I believe that these are the fundamental competitiveness that is quite pertinent for mobile operators in the market.

And especially with regards to the wireless corporate solutions market, we have enjoyed the first mover advantage and we have been building a diverse line up of solutions offering stability of systems and also convenience of use of various network solutions. So through these actions we are continuously building trust from our customers and I think that that gives SKT's Solution Services an upper hand.

And based on these competitive edges, starting from this year, we will be actively stimulating the enterprise mobility service market. And through technologies such as FMC and unified communications, by combining these Fixed and Mobile services together, we hope to provide more solutions for our corporate customers. And we hope to become a total enterprise solution provider and we would like to position ourselves that way.

And also to cite a couple of examples of providing productivity enhancement on the field of various industries, I could cite the following example. For example Korea Yakult is a company with an employee force of 13,000 and we have successfully established and supported with their sales force automation program. And also one of the most representative communication service tool, which is quite competitive, which is the BlackBerry system, we are also supporting the mobile office environment for companies such as Posco and also Korean Airlines.

And on top of that, to companies such as CJ GLS and also Korea Logistics, Samsung Life we have been providing the sales force automation services. And regarding the government entities we have also worked with Korea Meteorological Organization in building their FMC system as well. So as can be seen in these cases, we are providing various productivity enhancement solution programs for various industries. I hope that was sufficient as an answer.

(Interpreted). The next question will be provided by Mr. [Yang Jong-in] from Hankuk Investment Securities. Please go ahead.

(Interpreted). I have the following three questions. First of all you mentioned that your revenue target for the upcoming year is about KRW13 trillion and versus the 2009 revenue that is an increase by about KRW900b. So what would be the detailed breakdown of such increase that you are anticipating?

And relatedly, what would be the proportion taken up by your IPE business?

The second question has to do with your smartphone related strategy. You have mentioned earlier that you plan to acquire over 2m subscribers for smartphones. So we could assume that that involves some type of subsidy pay increase going forward. So how do you plan to strike the balance between the marketing expenses management and profitability.

Relatedly, do you have plans to adjust down subsidies for other types of phones as opposed to smartphones?

And my third question has to do with interconnection fees. I believe that there are variables that are existing in the market this year that could possibly impact the interconnection adjustments. And I believe that the government has announced that they hope to narrow the differences between telcos with regards to the level of interconnection fees. And also KT has incurred quite a bit of labor cost in 2009 and also I believe that opposed to the 2G network, in the 3G network there are some disputes regarding the route of interconnection between telcos it seems. So can you give us the basic direction and the big picture as to how the interconnection fees will evolve?

(Interpreted). Although we cannot give you the breakdown targets of revenue per business area, what I could tell you is the following. We will be achieving the ultimate goal of KRW13 trillion in revenue targets by first of all increasing the distribution and penetration of the smartphones and also by increasing the number of data fixed price plan subscriber base. And through such activities we will be able to further stimulate the wireless internet business so that it could lead to bigger revenue in that regard. And also in other area we hope to increase new revenue sources from the B2B related IT market and IPE business. And through such activities we will do our utmost to achieve the revenue target of KRW13 trillion.

And also to elaborate with regards to the IPE business, we hope to achieve the successful global business model as soon as possible in this business area. But in the process we would rather stay away from the short term quantitative goals and targets per se, but rather focus on expanding the business expansion with a long term growth potential in mind. And also as we expand the business model going forward we will be enjoying the scalability advantage as well. So we believe that in the long run we will be able to achieve quite a bit of performances at the end of the day.

And when we talk about the revenue targets for the IPE business area, it involves also and it includes the existing corporate customer related services that we have been providing in the past, which also comprises the leased line services and various platform services that is provided depending on the business solutions or the model.

To answer your second question regarding the smartphone related strategy, for your information compared to feature phones, smartphones involve KRW40,000 higher per subscriber in terms of subsidy payment. So there is a possibility that per subscriber SAC can go up indeed. And also in order to deal with the iPhone launching in recent months, we have been expending more subsidies for the T Omnia II. So with these activities we are trying to increase a higher share of accumulated smartphone distributed in the market. And also within the coming year Android phones will be distributed as well and in that regard we could also leverage a lot of the strategic activities as well.

So accordingly for some models of smartphone line up there might be some subsidy payment increase that can take place. But we will manage the market situation in a strategic way so that we do not negatively impact the overall marketing expense related strategy.

And also as more number of smartphones are sold in the market and as the manufacturers start producing more number of smartphones in the market I believe that the absolute price of the manufacturer's smartphones themselves are likely to go down. Therefore although currently the subsidy payout for the smartphones versus feature phones tend to be higher right now, I believe with the growing number of distributed smartphones in the market it is likely to bring down the price. Therefore it will definitely the stabilization of the market.

And also although it is true that on some models of smartphones, the level of subsidy payment is indeed increasing, but as we have seen in the case of T Omnia II, their average data ARPU tends to be twice as high as the data ARPU of feature phone subscribers. Therefore I believe that such higher average ARPU coming from those smartphone subscribers will ultimately impact the overall bottom line in a positive way.

And regarding your third question about the interconnection fees, as of the end of 2009, SKT's interconnection fee when compared to KT's wireless interconnection and LGT's interconnection fee, those competitors were paying 17% higher interconnection fee approximately. So when it comes to 2010 and 2011, we will be readjusting the interconnection fee, at which time it is likely that the gap between the players is likely to narrow. However, we are still in an early stage of such readjustment calculation. Therefore it is quite early for us to estimate any government actions going forward. However, I believe that the overall trend of easing asymmetric system will be continuing into the future as well.

(Interpreted). The next question will be presented by Mr. Stanley Yang from Nomura Securities.

(Spoken in Foreign Language).

Before I interpret the question I would like to correct the earlier interpretation on the answer. Actually SKT is paying about 17% higher interconnection fee to KT and LG Telecom. Now back to the questions.

(Interpreted). I have the following two questions. First of all regarding the non-operating expenses, I believe that the disposition related expenses -- disposition related item on the tangible assets amounted to about KRW200b and also the equity method gain amounted to about KRW150b, which was an increase, quite big. So could you talk about the details about this as well? Was it because of the transition of moving away from 2G to 3G?

And also relatedly, can you give us the breakdown of the equity method gain or loss? And what is the escalated trend for 2010 with regards to equity method balance?

And the second question has to do with the depreciation regarding SK Networks leased line. It seems during Q4, depreciation has gone up while the leased line cost has come down. So on a quarterly basis, can we anticipate reaching I guess the overall leased line cost down to KRW250b -- excuse me, KRW25b because in Q4, that amounted to about KRW50b?

And also regarding depreciation, during Q4 how much of the SK Networks related factor affected the depreciation amount? And for 2010 as well can you give us some light on the depreciation trend?

(Interpreted). On these line of questions our CFO, Mr. Dong-Hyun Jang will be answering your questions.

(Interpreted). My name is Jang. I'm the CFO of SK Telecom. Let me answer your first line of questions regarding the non-operating expenses or losses or gain items. Aside from the recurring types of non-operating items, last year as you are well aware we have disposed the China Unicom shares through which we have incurred about KRW140b worth of disposition loss. This is actually something to be explained in that our value has come down when compared to the original acquisition price. But as you recall during 2007, we have actually reflected in the accounting books the valuation gain on conversion. So that reflection was made. So compared to the '07 reflection, during the disposition process we have incurred one-off loss on accounting book only.

And regarding your questions about the equity method gain or loss items and the breakdowns, as you know those companies subject to such equity method valuation include companies such as SK Broadband, SK Comms, [Rowan] as well as iHQ, most of whom are listed companies. And because of the disclosure issues we cannot talk about the detailed items or numbers at this point. So once those respective companies disclose their numbers then we will be able to answer your questions if you contact our IR department separately.

To answer your question about the leased line expenses, as we have communicated earlier, what we used to pay SK Networks from SK Telecom regarding leased line expenses on a quarterly basis was about KRW70b. And as you are well aware the leased line network that SKT has acquired from SK Networks is not only used by SK Telecom alone but some of those lines are used by other entities outside of SK Telecom. So some of the inadequate or insufficient line or lines were leased from companies such KT and LG Powercom, so those things are actually something that we have to pay too.

So therefore if you exclude those amounts which is about KRW20b on [a service], the leased line related amount comes down to KRW40b to KRW50b as you have mentioned. Therefore the expected impact of KRW300b per annum with regards to the positive effect from the acquisition of SKN's leased line is actually being realized.

Let me move on to the depreciation item. And with regards to the depreciation amount, last year it was higher than KRW2 trillion. As you recall during 2008, compared to the 2008 average it actually went up in terms of the CapEx expenditure in 2009 because the CapEx amount came to about KRW192b. So that has led to higher depreciation for '09 partially. And also partially because of the purchase of SK Networks leased line during Q4, some of the depreciation impact came from SKN's network expenses as well. So because of those two factors compared to '08, '09 depreciation was higher.

As regarding the depreciation trend for 2010, for your reference, SK Telecom is using the declining balance method which is an accelerated depreciation methodology. Therefore because of the acquisition of the SK Networks network and because we would be applying the same accelerated depreciation method, we will likely experience slight increase of depreciation expenses.

(Interpreted). The next question will be presented by Mr. Jeff Kahng from Credit Suisse. Please go ahead sir.

(Interpreted). I believe a similar question was posed earlier but I don't think that a direct answer was given. So let me re-ask the question. Regarding the WiFi network rollout, do you have a specific number of hot zone targets that you have in mind until the year end?

And secondly, it has to do with Android phones. It seems that Android models or OS will be the main models of smartphones that will be distributed in the future. So what would be the relationship between the Android market versus open-market/key-store market in the future?

(Interpreted). To answer your first question regarding WiFi rollout, the number of APs would be very much linked to the amount of demand coming from the markets. It's quite volatile as to the exact numbers so for that reason we will not be able to communicate with you the detailed numbers. And we will continue to analyze the usage patterns of the subscribers to decide the final investment size.

To answer your second part of the question, we will move away from the existing (inaudible) policy centering on the mobile telephony operators only towards more open and more cooperative ecosystem focusing more on customers and developers, so that we could pursue the data business transformation so that we could further activate the wireless internet market, so that we could positively lead the overall changes in the telecommunications market.

And also in the mid to long run, in order to secure the contents competitiveness we will be providing various developer training programs in order to foster and grow more high quality developers and to enable more high quality contents in the process. So we are also planning to utilize about KRW10b worth of application development support fund to that end.

Also together with Android market, we will be making sure that the manufacturers' contents Open Marketplace and T Store may all coexist in a clustered manner. And to that end we will be supporting the mobile billing functions as well so that contents distribution can be stimulated. So doing these activities, we will take the leading role in the re-leaping in the ICT industry as a whole.

To elaborate on your first question regarding the WiFi rollout, although we cannot provide you with detailed investment guidance to this matter, what we could tell you is that we would be taking a very proactive stance when it comes to the rollout of WiFi. Thank you.

(Interpreted). The following question will be provided by Mr. Cheon Young-hwan from Shinyoung Securities. Please go ahead sir.

(Interpreted). I have the following three questions. First of all it seems that you are pursuing the IPE initiative quite aggressively. However, if there are any areas where you believe that you are lacking or where you think you have inadequate capabilities, what could those be? And in order to strengthen those inadequate areas do you have any particular investment in mind? If you could share that with us that would be appreciated.

And the second question has to do with your CapEx guidance of KRW1.75 trillion. Now I'm wondering whether that figure includes your future investment in the HSPA Plus network as well. If so, how much is that amount and beyond next year, what is your investment guidance direction for HSPA Plus network?

And the third question has to do with your Hana Card launching. I believe that the Hana Card Company has officially launched recently. So any update on the progress?

(Interpreted). Your first question regarding IPE will be answered by [Mr. Chung Sup Chi], in charge of the IPE business.

(Interpreted). My name is [Chung Sup Chi], in charge of the IPE business. Thank you for such a good question. When it comes to the differentiating factors with the existing B2B business in the corporate business sector, I could cite the following two challenges our new business model of IPE could possibly face.

First of all, we need to provide the consulting capabilities based on insight on the future trends per each industry. So basically, in order to become a future-oriented IPE business provider, we need to be able to provide based on what we have so far and we should add plus alpha in terms of the capabilities. So that's one thing that we need to work on. And secondly, from the very get go of the IPE initiative, we have been having, keeping the globalization in mind. And therefore, even if it is the same industry, depending on each overseas market, they might have some different characteristics as well, so we need to study in depth about such characteristics going forward. So those two are the biggest challenges that I could think of.

(Interpreted). To answer your second question, SKT will continuously monitoring the smartphone expansion as well as the data usage volume increase. And we already have the plan of actually launching the HSPA Plus commercialization within the year so we are in the process of developing the relevant equipments as we speak. And also looking at the capacity build up investment, we will be expending CapEx for HSPA Plus within the overall total CapEx amount of KRW1.75 trillion. Therefore, there will be no additional CapEx with regards to HSPA Plus. And regarding the guidance on the HSPA Plus CapEx beyond next year, we will have to look at the data traffic volume trend before we decide the future investment amount.

Regarding your third question about the launching of the Hana Card business, our CFO will be answering that question.

(Interpreted). Regarding the Hana Card joint venture initiative, we are still awaiting the final approval process by the government and therefore, before the announcement of the government approval officially, it would be too early for us to discuss business plans for this joint venture. So I ask for your understanding about that. But what I could tell you is that the team preparing for the joint venture launching is preparing things without a glitch, providing various plans for innovated and highly acceptable type of business models and products on the part of the customers. So after the government announces the final approval, then I'm sure the Hana Card joint venture will be announcing such details for our business plans.

(Interpreted). The next question will be presented by Mr. Josh Bae from UBS. Please go ahead sir.

Yes, thank you for the opportunity. I have two questions. First, again on the WiFi investment, if I may ask in a different way, how much do you think will be required for you to catch up with your competitor in terms of the coverage and network quality?

Also, are there any practical challenges that you could face when expanding coverage, for example receiving consent from property owners, etc?

The second question is on your fixed-line strategy. I think you mentioned upfront that you want to be a leader in both fixed and mobile by 2011. If you could elaborate on how you define being a leader, do you refer to having the highest combined revenues or subscriber base, or if you have a different definition?

And also, if you could share with us what your plans are for SK Broadband considering the new CEO there, including potential possibility of a merger.

(Interpreted). Let me answer your first question regarding the WiFi investment. In principle, our view is that we would be beginning the rollout of the WiFi network around the public spaces where there is a lot of foot traffic there. And also we will be rolling out the WiFi network sufficiently enough so that our subscribers may not feel the inconveniences as opposed to the subscribers of other carriers.

And again the investment total for the year, including WiFi, will be less than KRW1.75 trillion and so we will be tapping into the key membership related partner vendor stores initially. And again we will be utilizing the WiBro network as a backhaul network as well. So we will be gradually increasing the hotspot zone continually. So to your question, we are unable to give you specific numbers or the signs at this point so I ask for your understanding. And based on the finalized investments in volume, all the details like the timing will be changing as well. So in short, our WiFi strategy would be pursued looking at the overall strategic environment in the markets. So we will be reacting quite flexibly.

We will answer the second question in a little bit, but to answer your third question first regarding a possible merger with SK Broadband, at this particular juncture, we have no plan whatsoever regarding such an M&A scenario.

After the merger between KT and KTF, KT I believe is trying to leverage their upper hand in the fixed line network so that it can be spilled over into the wireless network and we believe that their efforts in that regard will only accelerate. However, considering the technological prowess of our Company and also the quality competitiveness of our wireless network, we are confident that our strength and upper hand in this area will be even more solidified going forward.

And also in order to further strengthen our competitiveness in the wired market, which is on the surface less competitive than KT which is combined, we will conduct the following efforts. First of all, we will officially link with SK Broadband's fixed line network. And secondly, we will expand the WiFi coverage. And thirdly, we will be expanding the wired B2B infrastructure through the acquisition of the SK Networks' baseline business. So through such efforts, we would be further operating the wired/wireless integrated network with the technologies.

We will continue to improve the service platform of the fixed and mobile convergence for our services terminal and network. And when we say we will be number one in terms of fixed/mobile area together, we will be basing the criteria on the revenue and also it would be under the criteria of offsetting the revenue coming from the handset. So it will be the revenue as the final criteria.

(Interpreted). The next question will be presented by Mr. [David Lee] from CLSA. Please go ahead, sir.

Hi and thank you for the opportunity. I have two questions on smart phones. First of all, I think you hinted earlier in the call that growing smart phone sales would result in better profitability for the business. Are you implying that with the decline in handset prices, manufacturer subsidies are likely to remain relatively unchanged and, in addition, we can see a decline in your own subsidies to subscribers?

My second question is I was hoping you could provide some color as to why you might believe the Motoroid and other Android handsets would do well in Korea. If you could kindly share some data points such as the latest pre-order volumes, that would be very helpful. Thank you.

(Interpreted). To answer your first question, regarding smart phones, on some smartphone models there is a possibility that the subsidy payment might go up but we will be running and manage the markets strategically so that it does not grow the overall marketing expenses as a whole.

And as the distribution of smartphones become more prevalent and as the manufacturers begin to manufacture and produce these smartphones in earnest, I believe that its own price point will be naturally dropping. And right now, our subsidy payment for the smartphones is relatively higher compared to the feature phones, but, again, with the increasing number of supply in the market, I think it is likely to go down. So to recap, once the price point of handsets themselves go down, we reduce the amount of subsidy payment, I believe that the price point will be near the desirable purchase point on the part of the customers.

The next question would be answered by Mr. [Sun Gwan Li] from the MNO division.

(Interpreted). My name is Li from the Marketing Strategy division, to touch upon your first question regarding the possible downward trend of those subsidy payments with dropping price of the manufacturing price of smartphones, it is possible that the manufacturing price of these smartphones will come down. And as our Company and as our competitors focus more on the distribution of smart phones, I think that the overall ecosystem will improve, bringing down the price even further.

And I believe that ultimately, once the price of the smartphones comes down gradually, I believe that the subsidy payment paid for the smartphone subscribers will converge to the level of the subsidies paid to existing feature phones at the moment. And you have mentioned as well earlier, the smartphone users are delivering over 20% to 30% higher ARPU on the average. So, therefore, we believe that ultimately, it will only boost up the bottom line of the Company.

And regarding your other question about the Motoroid and other types of Android phones, and you asked why we believe that those Android phones would be successful in the Korean market. Actually, we have conducted surveys on our customer base regarding the specification of Motoroid, especially the young target groups have responded quite positively. And also we have proven the viability of these phone lines through various experiences provided to our customers.

And one of the biggest reasons why this phone is quite well-received by this group of people is, first of all, because of the high speed for the internet access. Number two, because of the high quality multimedia function, and also the fact that this phone is quite optimized for the usage of Google-related services. For these reasons, young target groups seems to be quite accepting of this new technology because they enjoy utilizing and accessing internet while on the move.

And also starting from the 28th, we started receiving pre-orders on these phones both on and offline and in two days alone, per day, we have seen a registration or order by about 3,000 subscribers per day. So with this trend, by the end of the pre-order period which is February 4, we anticipate about 50,000 subscribers placing an order.

(Interpreted). The following question will be provided by Mr. Jae Park from Samsung Securities. Please go ahead, sir.

(Interpreted). I have the following two questions. You mentioned that your target of selling smart phones in the market within this year is about 2m units this year and at this trend, by the year end of next year, the number of smartphones in the market will exceed 5m. That would amount to over 20% of the entire subscriber base. Perhaps it will not be the case in Korea yet but in the case of the United States the smartphone users traffic tends to be 50 times more than that of the users of feature phones.

And you earlier mentioned that you plan to roll out the WiFi network, but let's assume that the smartphones do penetrate the market as you anticipate going forward and let's assume that by the year end next year the number of smartphones distributed in the market would amount to 5m. If that is the case, WiFi network alone might have problems in providing sufficient coverage. So to prepare for that, do you have any other additional measures in mind such as building additional backbone structure of building additional wireless network?

And my second question has to do with the Google Nexus One. And if it is introduced to the Korean market, I believe that the response would be quite huge initially because it seems the Motoroid phone in the initial response is quite positive as well. So what is your specific plans with regards to supplying Nexus One in the Korean market? Because earlier, with regards to the Apple phone, iPhone, you did mention a long time ago that you are considering it, but later on you ended up not providing it. So my question is your plans for the future regarding the Nexus One provision. Of course, you have existing relationship with [IHPC]. Perhaps that will make it easier. But any plans?

(Interpreted). To answer your first question, during 2008 and 2009 we have been conducting various solutions so that we could maximize the efficiency of our existing bandwidth so that we could further enhance the capacity of our networks. So we have already begun to see the visible results.

And also to elaborate on that, looking at the recent expansion of the smartphone distribution and we are looking closely at the data usage increase in the market. So we are planning to commercialize HSPA Plus services within this year. So in this regard in the future we might require additional frequency in the 2.1 gigahertz bandwidth. And also all these decisions are being made in the overall network investment perspective, therefore no additional CapEx will be required other than what we have communicated with you already.

The second question will be answered by Mr. Sun Gwan Li, the Head of MNO Division.

(Interpreted). Let me answer your question regarding the introduction of Nexus One. We are looking at various introductions of smartphones not only from domestic vendors, but also from overseas vendors as well. Therefore, Nexus One is not an exception. We are considering it internally. However, when introducing a handset model in the market, you need to align the policies of the telco as well as the policies of the manufacturer so we are still in the consideration stage. So nothing final has been decided yet.

(Interpreted). I have the following two questions. You have mentioned earlier that within this year you plan to launch 13 Android phone models out of the 15 smartphones to be launched. So can you share with us the reasons why you have decided to launch such a dominated proportion of Android phones this year?

And does that mean that the Windows Mobile OS which is embedded on the Omnia II phone is less competitive?

And you said that you plan to launch two additional smartphone models, altogether 15. So what OS do those two other models use? Is it Bada of Samsung or is it Windows Mobile?

The second question has to do with IFRS. Some of your competitors plan to announce their results according to IFRS starting from this year. So what is your plan regarding IFRS?

(Interpreted). The first question will be answered by Mr. Sun Gwan Li from MNO division and the second question will be addressed by our CFO.

(Interpreted). On January 14, the CIC President of M&O division has announced his plan regarding smartphone line-up and I think that that's why this question came about. We will be managing over 50 different models of handsets in total, of which 15 will be smartphones. And of that number, between 12 and 13 models will be Android OS embedded. And of course, there are other OS out there including Samsung's Bada or Symbian of Nokia. With regards to Symbian, we have not introduced it yet but it still exists.

And therefore, depending on the smartphone portfolio and depending on the external environment, our strategies will be dealing with it accordingly. For instance, our target of 13 out of 15 being Android OS is not set in stone. So depending on the environmental changes, we might manage it more flexibly as well. And the reason why initially, we are focusing more on the Android OS is because to date, it is the most open OS out in the market and therefore we anticipate more acceptance on the part of the developers and other players as well.

(Interpreted). With regards to your question about IFRS preparation for SK Telecom, we are planning to officially launch the IFRS system starting from fiscal year 2011. However, in order to enable our year on year comparison, internally starting from 2010 we will be also drafting accounting results according to IFRS as well.

(Interpreted). The following question will be presented by Mr. [Kim Huai Je] from Daishin Securities Company. Please go ahead, sir.

(Interpreted). I have the following two questions. Regarding the 4G strategy between LTE and WiBro, which one do you think is more likely going forward?

And secondly, regarding the MVNO market, I think that a win-win business model is in order in the market. So do you have a particular MVNO related win-win business model that you are keeping in mind at the moment?

(Interpreted). I believe that customers don't necessarily pay attention to the technological roadmap of be it WCDMA or WiBro or LTE or WiFi. I don't think that they're aware of particular technology per se, but they are rather interested in being able to access and enjoy services available in a most convenient way.

Therefore, SKT will not simply face our attention on the technological evolution track, but rather, in order to maximize the building of the user-centric network, we will be actively leveraging existing networks and at the same time, lead the network evolution process. And since we have still quite some time left until 2013 when we expect the full commercialization of 4G technology, we will be leaving open all the options available with regards to LTE track and WiMax related tracks as well so that we could further identify the best possible solution.

Regarding the second part of your question, related to and also abiding by the wholesale related resident laws and regulations available, we are planning to come up with a wholesale standard contract form with all the detailed conditions and procedures put in place so that we could come up with a win-win business model under the MVNO model. So that we could help open up and pioneer the new market going forward. In other words, since the likelihood of the need to come up with a possible business model that could bring about win-win solutions for both MNOs and MVNOs, SKT is currently also reviewing various business model options with the data MVNO alliance in mind.

(Interpreted). For those of you who did not have a chance to ask a question, please contact our IR department for detailed answers. We will now close the conference call with a closing remarks by our GMS CIC President.

(Interpreted). Thank you for joining our conference call until the very end. All of your meaningful questions and interest will contribute greatly to the management activities. As mentioned earlier, SK Telecom will do its best to realize specific and visible growth as we usher in year one of a new leap forward. We ask for all of your support and cooperation in our efforts to achieve improved profitability and shareholder value increase going forward.

This concludes the conference call for the first quarter 2009. 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.