SK Telecom Co Ltd (SKM) 2011 Q2 法說會逐字稿

(Interpreted). Good afternoon. Welcome to the conference call for the fiscal year 2011, second-quarter earnings results by SK Telecom. This conference will start with a presentation followed by a Q&A session. And now we begin the conference of the fiscal year 2011, second-quarter earnings results by SK Telecom.

(Interpreted). Good afternoon. My name is Soo Cheol Hwang, the IR Officer at SK Telecom. Today's conference call will consist of the presentation by SKT's CFO, Mr. Seung-Yun Ahn on the earnings results for Q2 2011 and the management plan and strategic direction going forward, followed by a Q&A session. To help deepen your understanding, we have the relevant executives present here today.

For your information, today's conference call will provide consecutive interpretation. Let me also remind you that all the forward-looking statements are subject to change, depending on the macroeconomic and market situations.

Let me now present our CFO, Seung-Yun Ahn.

(Interpreted). Good afternoon. My name is Seung-Yun Ahn, the CFO of SK Telecom. Thank you for taking part in today's earnings conference call for the second quarter 2011.

SK Telecom strives to be a leader, shaping the future of the telecom and platform landscapes. In the M&O business we will continue to maintain our leadership position in the wireless Internet market, leveraging the differentiated network quality befitting the LTE era. In the platform business, with enormous growth potential, we will establish the most optimized business environment and management infrastructure through the spin-off of the platform business, and thereby foster the business as a new growth pillar based on the subscriber power going forward.

On that note, let me discuss the earnings highlights for Q2, 2011. Starting from this quarter, for the benefit of the investors and analysts, we will be communicating the major changes in the earnings in terms of the consolidated IFRS basis.

Revenue for Q2 2011 marked KRW4.04 trillion, up 5.7% year on year and 3.4% quarter on quarter, supported by the smartphone subscriber growth. Despite the higher depreciation and handset installment receivable commission, the operating income recorded KRW660b, going up 2% year on year and 7.4% quarter on quarter, thanks to the revenue expansion and the reduced marketing expense from market stabilization efforts.

EBITDA stood at KRW1.27 trillion, which was 8% higher than the same period previous year and 5.4% more than the previous quarter. Net income rose 3.7% year on year to KRW470b.

Under IFRS standalone basis, the revenue marked KRW3.2 trillion, marketing expense KRW820b, operating income KRW630b, EBITDA KRW1.1 trillion and net income KRW470b.

That was the earnings highlights. And let me now move on to the management plan and strategic direction for the future.

SK Telecom commenced the 4G LTE service on July 1. Since day one of the service we are achieving cost efficiency by interlinking with our already optimized 3G network and by fully leveraging our existing infrastructures, such as 800 megahertz repeaters. Not only that, we are providing seamless services, without call drops, in every service area we cover.

In the beginning of next year we will expand the service coverage to 23 cities, including the Seoul metropolitan area, keeping abreast with the subscriber growth trend based on the more flawless network quality. By 2013 we will roll out the service coverage to 82 cities throughout the country.

LTE will offer high-resolution video calls, far more advanced from 3G, high-quality VOD service, the cloud service with large capacity and high-speed data features and gaming service connecting multi-users. The dedicated LTE smartphones to support such features will be launched in early September. Until the year end we will complete the full line-up of devices, comprising five to six models of smartphones plus tablet PCs and data modems. We will also provide new value to customers by introducing optimized tariff plans specific to LTE features.

In the 3G network we are expanding capacity by applying data-preferred SA and W Scan, which is a [9-sector] solution to stably and efficiently accommodate the exploding data traffic, while adding femtocells and WiFis. By constructing the most optimized network portfolio which reflects the customers' usage patterns, we will secure sufficient network capacity and support the data traffic in a stable way.

The market heated up somewhat during the second quarter. SKT is making diverse efforts to help stabilize the market and the market is gradually normalizing at the moment. During the second half we will break away from the competition to win subscribers through subsidies and help stabilize the market and increase profitability, leveraging our fundamental service competitiveness.

If you look at the market as a whole, the smartphone adoption is increasing at a much faster pace than anticipated. As of the end of June we have secured 7.5m cumulative subscribers. We expect to sufficiently achieve our annual guidance of 10m subscribers by the year end.

The market interest in tablet PC is on the rise. As a second device, the tablet PCs are being utilized more and more as an eBook, media, education and word processing means. SKT will foster this as a new growth market for the mobile telephony business going forward.

We are also seeing visible results with cumulative revenue growth in the B2B area as well. In the B2B business, where we set out the annual target of KRW1.2 trillion in revenue for year 2011, the Q2 revenue reached KRW312.1b, jumping 63.7% year on year.

In this new growth area of B2B business, we will further widen the customer base in the B2B market by offering diverse services and solutions befitting the B2B customers' characteristics, in line with a higher uptake of smartphones and tablet PCs, among others. In so doing we will lead the B2B market and further solidify our competitive edge.

We will continue to seek growth opportunities by expanding the B2B scope to include SMEs and SOHOs, and by entering into areas such as Golden City, the new concept location-based SMS service, the T Smart Learning in the education area, the Smart Branch for the financial and retail areas as well as healthcare.

The platform business crystallizes SKT's major strategic new business endeavors pursued during the past 10 years. By ensuring more appropriate appreciation of the growth value of the platform business, which was hidden behind the M&O business to date, and by allowing the platform and M&O business to pursue the most optimized value for their respective business characteristics, we anticipate the overall enterprise value to increase in the future.

Upon spin-off on October 1, the platform business will be equipped with the optimized management system to support the platform business. By creating an ecosystem focusing on openness and collaboration, we seek to shape changes.

The spun-off entity will fortify its fundamentals by expanding the technical manpower and by operating the in-house venture system. With the asset size of KRW1.5 trillion and cash on hand of KRW500b, it will be equipped with the business structure able to achieve both profitability and growth from the very start of the new entity.

The business scope of the newly spun-off company will include all core platform business areas, such as apps store, commerce, advertisement and new media, among others. The platform company will develop services independently from the existing M&O business to secure its own prowess, and it will make inroads into Asia and the global market.

T Store, which is the number-one app store in Korea, is gearing up to enter into the Japanese market following China and Taiwan. T Store plans to open up its major assets, like the infrastructure, in the future and expand alliance with global players in order to evolve into a global app distribution platform.

In the commerce business we are expanding alliances, while pursuing inclusive growth with small- and medium-sized companies by opening up the relevant infrastructure. We will pursue global expansion, focusing on the Asian region.

With the launching of in-app advertisement in our mobile advertisement platform, we plan to grow into a customer context-based N-screen ad platform by interlinking various internal and external services.

The new media business will further strengthen our platform competitiveness as the N-screen based personalized media by delivering whole new experiences, above and beyond the existing media, like IPTV.

In addition, we will transfer the platform-related subsidiaries like Cyworld, NateOn and MelOn under the umbrella of the new spun-off company, and boost the platform company-centric synergies while maximizing the enterprise value. Through such efforts we will grow into a global platform innovator, integrating innovative technologies and customer needs with annual revenue of KRW3.5 trillion within the first five years.

Also we have submitted the LOI for the acquisition of Hynix as part of an endeavor to secure a new growth opportunity. And we are having due diligence at the moment. We will conduct thorough and sufficient review and prudently approach the process.

Lastly, I would like to touch upon the shareholder return policy. As part of our efforts to increase shareholder value and shareholder return, we decided to purchase 1.4m treasury shares, equivalent to KRW200b. We also decided on the interim dividend of KRW1,000, as the previous year. We will maintain the similar cash dividend level, including the interim dividend, as last year. We will continue to uphold the shareholder-friendly, shareholder return policy going forward.

To conclude, SK Telecom will do its utmost to continue creating stable profit amidst the new paradigm of en-masse adoption of smartphones and the smart evolution of the ICT-based ecosystem, while making efforts to achieve new growth.

On the M&O front, we will maintain the market stabilization stance by competing, based on our fundamental competitiveness, leveraging differentiated upper hand throughout the market-competitive elements under the new competitive landscape, including the introduction of LTE. On the platform side, we will prepare the spin-off in a seamless manner, and contribute to the overall SKT enterprise value enhancement as a new growth pillar.

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

(Interpreted). (Operator Instructions). The first questions will be provided by Mr. Yang Jong-In from Hankuk Investment and Securities. And the next question will be provided by Mr. Stanley Yang from Nomura Securities. Mr. Yang Jong-In, please go ahead with your question.

(Interpreted). I have the following three questions. The first question has to do with your Hynix acquisition. I believe that it will require initial capital injection in order to acquire the company. So beyond 2012, I was wondering whether it will impact your future shareholder return policies.

The second question has to do with CapEx. Can you share with us your target CapEx amount for the year 2011, and also share with us your estimate for year 2012 as well? The reason for this question is because, within the market, there are concerns that the recent rapid explosion of data traffic is calling for the need to further expand your CapEx. So I was wondering whether you could also answer, relatedly, whether you have the possibility of abolishing or eliminating the unlimited data service plans that you are currently offering.

The third question has to do with the spin-off of the platform business. Does that mean that your overall picture in terms of strategy will change because of the spin-off? And you just now shared with us your revenue target for five years later at KRW3.5 trillion in terms of revenue. But can you give us some more color with other details about the planned spin-off and the division's activities?

(Interpreted). Let me first answer your first question regarding a possible change on our existing shareholder return policy, after the acquisition of Hynix, if that happens. As I just mentioned in my opening remarks, our plan for the rest of the year is to maintain the same level of cash dividend as the previous year in order to uphold our existing policy. And also, in addition, we have decided to purchase our treasury shares in the amount that I have mentioned earlier.

Going forward, regardless of the investment into Hynix, we plan to uphold our shareholder return policy without changes. So we will continue to strike the right balance between investment into new growth, as well as shareholder return policies.

Let me address your second question regarding our CapEx-related plans. Up to this year I believe that the main investment into CapEx comprised of WCDMA-related investment. But beyond the next year I believe that LTE-related investment will exceed further, thereby becoming the core investment item under CapEx.

According to our estimate for now, it would require about KRW2 trillion in terms of LTE investment until year 2014. And, as you are well aware, in the beginning of the year we have communicated with you our CapEx annual guidance of about KRW2.3 trillion. And we plan to expend this CapEx expenditure within that guidance amount.

And in the mid- to long-term perspective, we will continue to work on improving our technologies and further enhancing cost effectiveness or efficiency of our systems so that we could realize downward stabilization trend of CapEx amount beyond the next year. And we will continue to develop relevant technologies to deal with rapidly growing traffic increase as well.

Let me also answer your question regarding the possibility of abolishing the unlimited data usage plans. In the existing 3G network, I believe that the unlimited data price plan has contributed greatly to the rapid increase of the smartphone subscribers for our Company early on. And also the number of those subscribers subscribing to the multi-volume or mega-volume price plan has increased in the process as well.

And also in terms of the platform business, I believe that such price plan has also contributed to securing our subscribers in the platform side of the business. So at this particular juncture we are not reviewing the possibility of eliminating the unlimited data price plans on the 3G network. But in terms of specific areas where abnormal traffic flows are identified, then there are always possibilities of managing the network accordingly. And on the LTE platform we will review all possibilities in order to ensure possible growth in various directions.

Let me now address your question regarding a possible change on the overall strategic picture upon the spin-off of the platform business.

If you look at the major areas that platform business will be focusing on, it will include the existing business models, such as T Store, T Map and communications, as well as new profitable and promising areas, such as TV portal, advertisement and commerce. Through such effort we believe that we could achieve the revenue of about KRW3.5 trillion in five years' time. And at that time we believe that we could achieve KRW5 trillion worth enterprise value for the Company as well.

At the platform company we believe that they could begin to initiate development of services separately and independently from the M&O business, thereby securing power subscriber users. And, at the same time, it will create the right platform to enter into the Asian and the global markets going forward. To that end we will continue to increase the number of technical manpower. At the same time we will utilize the in-house venture system as well. Through such efforts I believe that we could further strengthen our fundamentals.

So while we are going to proceed with independent decision-making process, away from the M&O company, we will continue to collaborate with the M&O business in terms of marketing. Therefore we will be doing our business true to the basic spirit of SK Group, called separately and yet together.

(Interpreted). The next questions will be presented by Mr. Stanley Yang from Nomura Securities. And the following questions will be presented by Mr. John Kim from Deutsche Securities. Mr. Stanley Yang, please go ahead with your question.

(Interpreted). I have the following questions. My first question has to do with your ARPU. If you look at the billing ARPU trend on a year-on-year basis, it seems to have come down by 3%, reaching KRW33,500. And I believe that -- I was wondering if you could share with us the smartphone-based ARPU as of second quarter and also the ARPU of the feature phones as well. Because as the subscribers switch away from feature phones into smartphones, I believe that the ARPU trend should be going up, but yet your overall ARPU seems to be going downwards. So what is the reason behind that? Perhaps it is because some of the users are utilizing two phones at the same time. But could you be more specific about the reasons? And also by when do you anticipate year-on-year increasing trend in terms of the billing-based ARPU?

The second question has to do with your profitability. And it has to do with your new business area as well, especially regarding your broadband resale initiative as well as the 11th Street commerce business as well. I believe that your revenue is showing an increasing trend, but what about the profitability? Because, in terms of the resale of the broadband services and the 11th Street commerce business, I was wondering whether you could share with us their status in terms of operating profit or EBITDA basis. Are they reaching breakeven already or are they going beyond that?

And also relatedly, in the beginning of the year you shared with us the OP guidance under K-GAAP to grow by 10% year on year. But under the consolidated IFRS basis do you also anticipate year-on-year OP growth of 10% as well?

And also we anticipate the tariff reduction during the second half of this year. So how will that affect your overall business results?

(Interpreted). Let me first address your ARPU-related question. If you look at the ARPU for Q2, it has actually gone up quarter on quarter. But if you look at the year-on-year ARPU trend, it was not able to go up because of the various discount tariff plans that have been offered to various subscribers.

And, if I may give you some outlook on the future ARPU trend, I believe that there are those positive elements on ARPU as well as negative elements coexisting at the same time. If I may cite the factors contributing to the ARPU increase going forward, it would include the following.

First of all, as the feature phone smart subscribers convert to smartphones, I believe that the overall ARPU impact will be positive. And if you look at the end of last year's proportion of the smartphone users out of the total subscriber base, it amounted to about 15%. And by the year end this year we believe that that proportion is going to go beyond 40%.

And to answer the part of the ARPU-related question earlier, the current average ARPU for smartphone users amounts to about KRW50,000.

And another positive factor on the ARPU trend is the fact that if you look at the overall smartphone subscriber base, most of the smartphone subscribers are opting for all-in-one tariff plans and other such multi-use fixed price plans as of today. And I believe that over 70% of such subscribers are opting for price plans above All-in-One 55. And I think that those trends will only contribute positively on the ARPU.

And let me also talk about the possibility of retaining high ARPU subscribers and the impact on ARPU. And, as you are well aware, we are trying to focus on the subscriber base structures, mainly centering around the high ARPU customers. As you are well aware, last year we did not offer the iPhone option. For that reason, it is true that some of our high ARPU subscribers churned out to competitors.

However, in the beginning of this year we started offering iPhone as well, further strengthening our handset lineup competitiveness. Therefore it has resulted in less MNP outflow and we were able to retain our high ARPU subscribers and, in some cases, we are even winning back some of the high ARPU customers away from our competitors.

If I may cite some of the negative factors on the ARPU trend, of course mainly it would be the tariff reduction that is taking place. In the case of SK Telecom, as I mentioned earlier, our smartphone subscriber base is rapidly increasing and we are improving the overall subscriber structure, as I told you. And we are trying to minimize any discount that is to be -- taking place at the point of sale. Through such efforts we will try our best to offset any negative factors that I just mentioned regarding the tariff reduction pressure.

(Interpreted). The following questions will be presented by Mr. John Kim from Deutsche Securities. And the next question will be presented by Mr. Sam Min from Morgan Stanley. Mr. John Kim, please go ahead with your questions.

Yes. Thank you for the opportunity to ask questions. I have two. First is on Hynix. Back in the beginning of the year your CEO mentioned that the new top management understood well what concerns that the market had about SKT when it comes to its investment opportunities. So what has changed in a span of six months for SKT to become interested in Hynix, which is an export-oriented business in a cyclical industry that SKT doesn't really have experience in? Can you explain the rationale for your interest in Hynix?

And second pertains to SK Broadband. Would your planned spin-off of the platform business have any effect, impact or influence on how you might collaborate with your subsidiary going forward? Thank you.

(Interpreted). Let me address your first question regarding the acquisition of Hynix. SKT, while maximizing its profitability from the existing MNO business, we have been seeking new growth opportunities to date in order to overcome the inherent growth stagnation within the MNO business.

Regarding the submission of LOI for the acquisition of Hynix, it was with the rationale that we are trying to support the overall platform business growth that we are trying to pursue. And, at the same time, in terms of the broader aspect of ICT definition, I believe that that includes semiconductors as well. So we are trying to focus on possible growth going forward for the future through such endeavor.

But of course this is on the premise that during the due diligence process we would be reviewing and monitoring very prudently about the cash creation capabilities of Hynix and the cyclicality of the business, as well as the company's competitiveness in being able to address such competition. So we would be looking at this option in a very prudent manner.

Let me now answer your second question regarding a possible impact on the structure of subsidiaries after the spin-off of our platform business. When it comes to those subsidiaries that are directly involved or related to the platform business, it amounts to five subsidiaries, including SK Communications, LoEn and also Paxnet, TMK and Commerce Planet. With regards to those five directly related subsidiaries, their businesses will be transferred under the umbrella of the newly spun-off entity, thereby reinforcing the resources and capabilities and also to maximize the integration synergy effect.

Regarding the possible M&A with SK Broadband or SK Broadband Media, we currently have no plan to do so. However, as we proceed with this business going forward, we will continue to monitor ways to maximize mutual synergy effect and we will look at various options as we go.

(Interpreted). We were not able to complete the answers for the first questioner, so let us revisit the first question as some of the parts were not answered fully.

(Interpreted). Regarding the question from Nomura Securities about the profitability of the new business, we were not able to get to that question and actually we moved on to the next questioner. So let me go back to that first.

Regarding the new business areas, including the platform business, it requires us to secure and acquire initial critical mass of the subscriber power and we have to make initial investment. And after that point of reaching the critical mass, then we could expect to reap profitability. For instance, in the case of the 11th Street, it's been about [two] years since we began that business. And, starting from this year, we believe that the operating profit will be turning to the black.

And also regarding the fixed line resale initiative with regards to SK Broadband, we began this initiative back in Q2 of last year. And so once we accumulate enough number of subscribers in that aspect, I believe that we will be also able to turn to profit in that regard as well.

And lastly, you also had a question regarding the guidance under the consolidated IFRS basis, and also you were asking about the impact from tariff reduction on the overall OP margin-related guidance. In the beginning of this year we have communicated on a standalone basis under the IFRS the revenue of KRW13.3 trillion and also OP of KRW2.4 trillion. For your information, under the consolidated IFRS basis we are not currently providing annual guidance.

The only thing is that in the beginning of the year, when we were setting up such guidances and targets, we were looking at about KRW16.5 trillion in revenue for the year under the consolidated basis. But nevertheless because of the tariff reduction on the SKT's part, I believe that the overall consolidated revenue figure will be impacted somewhat as well.

In terms of the operating profit under the consolidated basis I believe that it will be improving from the level of last year, which was at about KRW2.3 trillion. And of course we believe that the tariff reduction will be sufficient enough of a reason for us to anticipate some reduction on the revenue. So we do anticipate some reduction there. Despite the factors, such as the wider number of second device smartphones within the subscriber base, we will do our utmost to maintain our targets for the revenue.

And also under the operating profit-related impact, yes, we will anticipate some impact there as well. But by refraining from too aggressive of marketing competition and through efforts to reduce cost on other areas, we will do our best to meet the guidance under the OP line as well.

And of course, after the spin-off of the platform business in October, we anticipate other impacts coming from the spin-off itself. So we will continue to communicate with the market on all the changes that take place. So for sure there are some factors that are going to impact our overall business results. However, at this particular juncture we do not have plans to change the guidance numbers at this point.

(Interpreted). The next questions will be presented by Mr. Sam Min from Morgan Stanley. And the following questions will be presented by Mr. Kang Ji-Hoon from Samsung Securities. Mr. Sam Min, please go ahead with your questions.

Yes. Hi. Thank you for the opportunity. I'd like to explore what you said about shareholder return policy. I think you said that you would be balancing growth and the policy to provide return to shareholders. So I guess my question going forward is can we, into the future, expect that 50% of your net income will continuously be spent on other investment opportunities? And can you also give us a better idea as to what your investment policy is now? Clearly this is -- the Hynix bid is a cross-sector investment and should we see more of those cases going forward?

My second question is on your platform business, and I think you mentioned that you'll be transferring SK Communications underneath the platform subsidiary. SK Communications is a listed company and I was wondering what the implication is for the minority shareholders of SK Communications.

(Interpreted). Let me first address your question regarding striking the balance between the shareholder return versus the growth investment. What I can tell you right now is the fact that we do not anticipate any major changes on the shareholder return policies. In other words, our payout ratio will not go through any major changes. And, at the same time, let me remind you that this is not something that we could discuss in terms of 50/50 division in terms of NI going forward. So it's a little more subtle, more complicated than that.

So you could interpret this comment to mean that when I say payout ratio going forward, I'm not talking about a particular percentage, per se, but in terms of DPS basis we do not anticipate changes. That's what I meant.

Going forward, regarding our investment strategies or policies, now in case we succeed in the bid for Hynix, then we will be true to the investment philosophy of select and focus. Therefore we will be basically focusing on the platform core business and the Hynix business as two main pillars for growth going forward.

Let me now move on to the second part of the question regarding SK Comms. Regarding the future restructuring of the position of SK Comms going forward, now in the past it used to be situated under the umbrella of SK Telecom as a whole. But upon the spin-off of the platform entity, now SK Comms will belong to that entity's umbrella.

As we spin off the platform business, our basic purpose is to maximize synergies between the relevant businesses. And that is why we are trying to reshuffle the location of the subsidiaries within the Group. And going forward we will be maximizing the synergy between the platform business as well as SK Comms, thereby further enhancing the enterprise value of SK Communications as well. So therefore we believe that it will ultimately enhance the value for the minority shareholders of SK Comms as well. So we do not anticipate any minus factors on the minority shareholders.

If I may ask a couple of follow-ups to that, I guess regarding the platform and SK Communications, why put it underneath SK platform when you can essentially just merge the two entities? That's my first follow-up.

And secondly, on the shareholder return policy and investment policy, so I do understand it's not quite 50%. But you conducted a share buyback this year and last year as well. That puts it fairly close to the 50%. So I guess my question is would management or the Board of Directors in the future could consider share buyback being an annual or regular type of policy? And I guess if that can't be discussed now, should we understand that we can just rely basically on the cash dividends of KRW9,400, which essentially comes out to about 35% of net income -- in net income, and that's the only thing that shareholders can really rely on? Thank you.

(Interpreted). Regarding your follow-up question on the SK Communications, you asked why we're not choosing to merge the two entities instead of simply transferring the business. To that question we felt that we didn't have to go through M&A in order to create synergy between the two companies because we believe that under the current structure we could sufficiently address the synergy impact.

Regarding your follow-up question on the shareholder return policy, what I could once again reiterate is that our policy on shareholder return will not change. When it comes to the KRW9,400 cash dividend, we will definitely maintain that. But when it comes to the treasury share buyback, of course that will take place as needs arise.

(Interpreted). The last questions will be presented by Mr. Kang Ji-Hoon from Samsung Securities. Please go ahead, sir.

(Interpreted). I have two questions as well. First question has to do with your marketing-related policies. Regarding the special discount price plan, I believe that this plan has acted in terms of meeting or complying with the regulatory pressure. However, in terms of ARPU trend and also the growth prospects, I believe that this particular price plan has been negative to date.

So during the second half I was wondering whether you have plans or intention to reduce the proportion of the subscribers opting for the smart discount price plan. And, if so, how will that actually impact the overall marketing expense trend and how will that impact the market as a whole?

The second question has to do with LTE. When you launch new services in the market, of course having the right handset lineup is important. But more than that, consulting whether the consumers have the willingness to pay extra for that new service will be very important. And I understand that SKT has conducted in-depth surveys and research in that regard. So to the extent that you could share with us, what has been the initial feedback from the consumers regarding their willingness to pay more?

(Interpreted). Regarding your first question regarding the special discount tariff plan, of course this tariff plan was introduced in the market in order to deal with the competition. So it has brought down the revenue somewhat. But at the same time it has contributed by reducing the cost in some ways. So it has spread out the cost throughout the period. So it had some positive impact.

However, in terms of the mid- to long-term plan, of course we believe that the share of this particular discount plan should be coming down so that we are very definite about the direction. So going forward, even if the number of smartphone users increase, the smart -- the special discount tariff plan proportion should come down. And I believe that that policy also applies to the second half.

(Interpreted). The answer to the next question will be made by the Head of the Marketing Strategies.

(Interpreted). I am the Head of the Marketing Strategy. And let me answer the second part of your question. With regards to the launching of LTE, we have conducted surveys on the subscribers' service needs and as well as the market needs. And based on their existing experience with the 3G network, we have identified the customer needs.

With the recent rapid explosion of data traffic, there have been some customer needs regarding higher speed and for more diverse content as well. So that seems to be the general feedback coming from the market. So we are reviewing various types of tariff plans to meet the characteristics of this new service. Of course, according to our initial survey, we sense definite intention on the part of the consumers to pay extra.

And regarding the survey of the subscriber demand and also the potential for the subscriber base growth, initially, if you look at the 3G market environment, there has been definitely the market size increase followed by the increasing numbers of subscribers. So barring any other major regulatory or other types of external forces that could impact it otherwise, we anticipate similar trend in the LTE area as well.

If you require further detailed answer on this question please contact us and we will provide you with more details, written answers to those questions.

(Interpreted). This concludes the Q&A session. And now I would like to invite back our CFO for his closing remarks.

(Interpreted). Thank you for staying with us until the very end of SKT's earnings conference call today.

As the market leader, SK Telecom will maintain its competitive edge based on the differentiated upper hand, while help leading the market stabilization through fundamental service capabilities to achieve meaningful results. Going forward we will pursue both the growth of the MNO business as well as the spin-off of the platform business so that they could respectively create value that is right for the characteristics of that business.

I ask all the investors and analysts for your continuous interest and support for SK Telecom's efforts. SKT management will do its best to ensure diverse communications with the investors and analysts to further exchange views and opinions.

Once again, thank you for taking part. 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.