SK Telecom Co Ltd (SKM) 2015 Q1 法說會逐字稿

(interpreted) Good afternoon. I am Jeong Hwan Choi, the Head of IR.

Today's conference call will consist of the presentation on the earnings results for Q1 2015 and the future management plans and strategic direction by our CFO, Yong-hwan Lee, followed by a Q&A session.

To help deepen your understanding, we also have here with us executives from the relevant business units.

In today's call, we'll provide consecutive interpretation. Let me also remind you that all the forward-looking statements are subject to change depending on the macroeconomic and market situation.

Let me now present Mr. Yong-hwan Lee.

(interpreted) Good afternoon. This is Yong-hwan Lee, the CFO of SK Telecom.

SK Telecom was ranked first place in the National Customer Satisfaction Index survey conducted in March 2015 in the mobile telephone service sector for 18 consecutive years. SK Broadband was also ranked first place in the broadband internet and IPTV service sectors for five consecutive years.

Currently, SK Telecom is doing its best to solidify its position as a strong market leader under a new competition paradigm, including taking SK Broadband in as a wholly-owned company. I ask for continued interest and support of our investors and analysts in the future.

Let me now discuss the consolidated earnings highlights for Q1 2015.

Revenue recorded KRW4,240.3 billion, a 0.9% increase year on year. Compared to the previous quarter, it decreased by 1.1% mainly due to the seasonality of the first quarter.

Operating income recorded KRW402.6 billion, up 59.5% year on year as a result of a decrease in marketing costs, while decreasing by 17.8% quarter on quarter due to an increase in labor costs among others. EBITDA recorded KRW1,132 billion, up 18.5% year on year and down 8.7% quarter on quarter.

Net income for the quarter increased by 65.6% to KRW442.7 billion mainly due to equity method income on SK Hynix, but fell by 12.0% quarter on quarter due to a decrease in income.

With that, I will now move on to major achievements and the strategic direction of the Company.

This year, SK Telecom terminated inactive subscriber accounts for prepaid services that had been dormant for a long period of time. As a result, our market share fell slightly below 50% during the first quarter. While we indeed reviewed the symbolic meaning of the 50% market share, the Company decided that a healthy subscriber base structure is of utmost importance.

Excluding the termination of inactive accounts, churn rate recorded 2.0% and is expected to remain below the 2% range going forward considering the competitive situation during the beginning of the year.

The Company plans to utilize this opportunity to change the paradigm of competition thereby leading the way to a healthier distribution environment and strengthening the fundamentals of the Company including qualitative subscriber growth and improved profitability. To do so, we will turn away from destructive short-term subsidy competition and focus on long-term competition through innovative products and services and continue to strengthen our market leadership.

In April, our users welcomed the launch of T-Cash, a unique service that incorporates OK Cashbag points and other membership benefits. We are also providing our customers with more convenient service options, by strengthening our lineup of the so-called safe option products geared toward lower end price plan subscribers.

T Kids Phone and T Outdoor, both of which were launched last year, sold over 100,000 devices each, strengthening our confidence in providing tailored products for our customers through customer segmentation. We recently launched T Kids Phone 2, an upgraded version of the previous model and are preparing other competitive products that will satisfy various customer needs.

In April, we launched Pet Fit, a smart healthcare device for canine companions, and in May, a product called T PET will be launched which provides various services for pet owners including real time location information through a device with USIM and positioning module. We believe that such services will contribute to greater customer lock-in in the future.

Also in late April, we introduced a new membership program by the name Membership As You Wish, which allows our users to choose and make changes to the discount rates of partnered companies to best accommodate their different lifestyle. This service, which aims to enhance customer value by providing tangible benefits to loyal customers and strengthen customer retention, was launched after a long period of preparation during which the Company put in great efforts to change the foundation of our membership system.

Along with such efforts, we are preparing to provide tailored services to our customers by expanding our current membership service. In an LTE environment, with limited price and device options, efforts to enhance product competitiveness will be what wins the hearts of customers.

Due to the seasonality of the first quarter, including less business days, ARPU tends to fall compared to the previous fourth quarter. Also customers opting for lower price plans under the handset distribution act partly affected the ARPU decrease in Q1. However, based on continued expansion of the LTE pool and greater data usage, we stand by our outlook that the annual ARPU growth rate of 2015 will be similar to that of the previous year.

Along with generating stable results in the M&O business, driving preemptive change and innovation in response to the increasingly individualized customer needs and the advent of the IoT era is an urgent task. Today, faster convergence between various industries is erasing boundaries between businesses.

In the ever changing new era, it is impossible for a company to develop and provide all services alone. SK Telecom will create an ecosystem in which companies from various industries as well as venture and start-up companies participate and will secure a world-class level of competitiveness and efficiency through partnerships and cooperation.

SK Telecom aims to secure future growth by transforming ourselves into a next generation platform player. The next generation platform refers to a new type of platform based on telecommunication that includes creating an open ecosystem and providing innovative products and services that will satisfy the complex needs of our customers.

At the heart of our plans to pursue future growth will be the three next generation platform innovation strategies which are developing a lifestyle enhancement platform, evolving into an advanced media platform and nurturing an IoT service platform.

First, we wish to utilize our current strength such as the subscriber base, big data and distribution network to create new business models and success stories. An individualized lifestyle enhancement service that encompasses content, community and commerce is such a business that the Company is pursuing. Business partners with various technologies and ideas will come together to create an ecosystem and SK Telecom will serve as its platform.

Secondly, we aim to become an advanced media platform player that provides optimal video services, information and products while growing into a dominant player within the industry through integrated media capabilities of SKT affiliates and strengthening our content sourcing abilities. Our plan is to attract 15 million users by the year 2018. Already as of the end of the first quarter, our IPTV subscriber number exceeded 3 million, and for Mobile IPTV, 2.8 million.

Lastly, we plan to cultivate an IoT service platform such as Smart Home and Lifeware based on our partnerships with four home electronics companies, a smart home service that connects home appliances such as dehumidifiers, door locks and heaters, will be launched in May.

The partnership, which will be extended to over 10 companies within this year, will allow remote control of home appliances using mobile applications by attaching telecommunication modules to new models of partner Company. Also we plan to extend and develop the service into an integrated household care service in combination with a new form of total security service connected to ICT by utilizing NSOK.

As for our corporate solution business, we will expand the big data and IoT based cloud EMS service that enhances energy efficiency for buildings, factories and local governments so that it may include not only electricity but also gas and water pipes. We are also solidifying our position in all IoT sectors such as Smart Home, Smart Car and Smart Farm.

SK Planet is focusing on the next commerce business that connects online and offline with Syrup and 11th Street at its core. The Company also laid a foundation for business in the United States through Shopkick, and is strengthening its global business area through different models of 11th street such as Turkey's n11.com Indonesia's Elevenia and Malaysia's 11th Street.

Commerce is the fastest growing business area in the O to O business, a newly created business paradigm due to growth of the mobile sector and advances in technology. Through businesses including Syrup, OK Cashbag, and Gifticon along with online commerce businesses such as 11th Street and Shocking Deal, SK Planet will continue to lead the way of innovation in the world of online and offline commerce as well as do the best it can to create success stories in the next commerce business area.

Lastly, I would like to discuss shareholder return. As was explained early this year, we plan to review shareholder return for 2015 in a flexible manner in line with increasing shareholder value. The Company has selected innovating enterprise value as the top priority in 2015 and is well aware that the shareholder return policy must be reviewed within such context.

We are currently reviewing various options that include share buyback and cash dividend and the treasury shares used in acquiring further SK Broadband shares will be bought back within the next two years.

SK Telecom will continue to grow hand in hand with our shareholders based on speedy execution and efficiency. We ask for the continued interest and support of our investors and analysts in the future.

Thank you. We will now begin the Q&A session.

(interpreted) Now Q&A session will begin. (Operator Instructions) The first question will be provided by Hue-jae Kim from Daishin Securities and the next question will be provided by Jong In Yang, from Korea Investment Securities. Mr. Hue-jae Kim, please go ahead sir.

(interpreted) I have the following two questions. The first has to do with you taking in SK Broadband as a 100% owned company. What are some of the areas that are bound to change after you buy the remaining shares of SK Broadband. And I would also especially like to hear about the synergies that can happen between your subsidiary SK Planet and SK Broadband in the future?

My second question is, you mentioned during the opening speech that in 2015 you will take a flexible approach in reviewing your shareholder value. And also a while back, the CEO mentioned the plans for a share buyback during a press conference. So I would like to know what are your plans as regard to the dividend policy and especially the interim dividend.

(interpreted) Let me first address your first question. Until now as for our competitors they remained a one-body approach in terms of fixed mobile bundle product because they had internalized the fixed mobile capabilities whereas for us in SK Broadband we were separate entities running separately. So there were some limits as to the competition in that field especially for our media business growth.

And we believe that by taking in SK Broadband as a wholly owned subsidiary, we will be able to resolve some of the issues in that area. And we also hope to take a stronger drive on SK Telecom's media business going forward.

And especially we believe that we can accelerate the evolving of our media business regarding the new growth potential of our media business areas by utilizing the platform and creating different smart services as well as the N-screen service. In other words we will have a more flexible system in terms of the media business area.

We also believe that we will be able to achieve further growth because we become a one-body system in terms of the fixed mobile product competitiveness. And we also believe that our marketing strategies overall can become more efficient.

And as for the possible synergies between SK Broadband and SK Planet, SK Telecom will be at the center of the media business with SK Planet and Broadband as its partners, and the three companies will work as a one-body system. We will be able to have a more integrated media business strategy and to do so we have newly established a media business division within SK Telecom.

An example of that could be until now SK Planet and SK Broadband were by themselves when they were sourcing different contents, but going forward we will be able to do it together and eliminate overlaying disposal of resources and our bargaining power will be strengthened as well.

Let me now answer your second question regarding the dividend policy. As you said at the press conference held on April 23rd, our CEO announced that we do have plans to refill the treasury share stock in terms of what will be used to acquire remaining shares of SK Broadband.

As of now, we do not know the exact number of [dissenting] shareholders of SK Broadband that will exercise appraisal rights, so we do not have a definite volume as to how much shares we will buy back. However, if deemed necessary in terms of shareholder return and to stabilize our stock price, we are considering a KRW400 billion worth of share buyback.

And of course this kind of decision requires the approval of the Board of Directors, so as for the exact timeline and method, we cannot say for sure at this time.

As for changes to our interim dividend, as was explained during the conference call for the earnings of the fourth quarter last year, we are taking a positive approach in reviewing this. And although nothing has been decided yet, we will take into consideration the volume of the exercised appraisal rights of SK Broadband shares regarding the share exchange and we believe that we will be able to communicate the direction within the first half of this year.

(interpreted) The next question will be presented by Jong In Yang from Korea Investment Securities and the following question will be given by [Jong-un Bei] from UBS. Jong In Yang, please go ahead sir.

(interpreted) Thank you for the opportunity to ask questions. My questions are as follows. First, you mentioned that SK Telecom will focus more on the profitability and efficiency of their business even when your market share has fallen slightly below 50%. My question is, will that strategy still be valid when your competitors are more aggressive in terms of market share competition.

My second question has to do with the ARPU number. I saw that during the first quarter, the ARPU number was not as good; and in April the government raised the discount rate for tariff plans to 20%. So, I would like to hear from you as to what are your grounds for staying with your outlook that the ARPU growth for 2015 will be at 4.5%.

(interpreted) Let me first address your question regarding the market share. As you mentioned, this past March, in our efforts to normalize what had been the practice until now, we deliberately took measures to bring our market share slightly below 50%.

And on the backdrop of making such a decision was that the destructive and unnecessary competition for a greater market share would no longer be valid in the future. And in this context, regardless of what kind of marketing strategies our competitors may opt for, I again want to emphasize that we plan to create a healthy competitive environment focusing on the fundamental competitiveness.

In a nutshell again, the falling of the market share had to do with normalizing the abnormalities of market practices and although the impact is still there in terms of the loss of our market share, we believe that once it is stabilized then the market share numbers would return to the normal state.

Let me now touch upon the ARPU. First of all the number that we suggested for the annual ARPU growth at 4.5% did not reflect the volume of customers opting for the tariff discount in the market.

At this particular juncture, it is difficult for us to assess exactly how the tariff discounts will impact the market. I do think that we have to take some time to look at how the customers respond to this as well as how the distribution channels respond to this. So, these are factors that need to be considered. But regarding our goal to grow the ARPU as was first explained let me provide you with a couple reasons.

First of all, when you look at the LTE subscriber portion of SK Telecom's subscriber base, the number stands at 61%, which is relatively low compared to our competitors and this means that we have more room for growth in terms of LTE subscriber growth. And secondly, not just on LTE but all of our subscribers, data usage pattern is increasing in terms of the usage volume. So, based on such grounds, I believe that our initial plan to grow the ARPU will be feasible.

Another factor would be that overall SK Telecom is launching various services that can increase the ARPU in terms of greater data value. T-Cash which is a service that we launched is a good example of that and we believe that this will contribute to such ARPU growth, and I was told that it's doing very well in the market.

However, there is something that we do need to think about. For example, our second devices are doing very well and it is expanding with launches of various services including the T Outdoor or T Kids Phone. However, if we calculate these numbers as what had been the case until now, these numbers regarding the second devices and IoT services can distort the ARPU numbers. So, I feel that we may have to come up with a new supplementary index that -- indicator that can resolve this issue. Once these matters are finalized, we will be sure to communicate them to the market.

(interpreted) The next question will be presented by Jong-un Bei from UBS and the following question will be provided from Hong-sik Kim from Hana Daetoo Securities. Mr. Jong-un Bei, please go ahead sir.

Yes, hi. Thank you for the opportunity. I have two questions. First is a general question on the first quarter results. Looking at the quarter, the revenue was soft with mobile service revenue declining on both quarter-over-quarter and year-over-year basis. But in this environment, we don't really see signs of cost control with the operating cost remaining generally high and also the labor cost increasing meaningfully.

So, could you please help explain in a bit more detail what happened during the quarter with the revenue trend and the cost control?

Also in the first quarter, the consolidated operating profit was lower than your parent-only operating profit which is different from the past quarters. So, was there a particular subsidiary where the earnings deteriorated during the first quarter?

The second question is on the earnings outlook for the upcoming quarters, also your annual guidance. If you could share with us your thoughts on the earnings outlook for the upcoming quarters, whether you expect an improvement versus the first quarter and what could be the driver. And we're about one third into the year now, so how comfortable are you with the annual revenue guidance, which I think was KRW17.9 trillion.

And at the beginning of the year you had mentioned that on top of potentially increasing the interim dividend portion, you would also be reviewing the total annual dividend amount. So, wondering if this is still intact. I know you discussed the shareholder returns earlier, but I wasn't sure if this meant that what you mentioned at the beginning of the year was still intact in terms of reviewing the total annual dividend amount. Thank you.

(interpreted) First let me address your question regarding the revenue and cost of the first quarter. As for SK Telecom, what impacted the first quarter results had to do with the decrease of signup fees. And as for the quarter-on-quarter numbers, it is true that our mobile service revenue did not perform as much as we had expected.

And if I may go into a little bit more detail as for the year-on-year numbers that had to do with the decrease in interconnection income and the signup fee, it fell by 4% year on year. And it also -- when it comes to the quarter-on-quarter numbers it has to do with the signup fee, as well as a stagnant ARPU growth which led to a 1.5% fall.

However, as I did mention before, again the LTE subscriber portion of our subscriber base is 61% meaning that there is greater room for growth and the data usage volume is also increasing. So, on these grounds I believe that our mobile service revenue can turn around in the future.

And also regarding the revenue for new businesses and others, the seasonality of the first quarter was the main reason behind that. So we believe that, beginning in the second quarter, the numbers will be normalized.

And as for the cost side, frankly speaking, it had to do with the excessive competition during the beginning of the year. That is why the marketing cost did not fall as expected. However, beginning from February, the market is becoming a lot more stable and we believe that this trend will continue into the second quarter.

As for the labor costs, first of all, it had to do with a rise in the number of employees in the first quarter, as well as the incentive payouts. So it had to do with the seasonality as well. However, as you all know, we conducted a voluntary retirement recently, and although the cost related to the voluntary retirement will be reflected in the second quarter's numbers, in the longer term, we believe that this can contribute to a cutting of labor costs as well.

And regarding your question about the consolidated results and the separate results, one main factor is that among our subsidiaries, an example of that would be SK Planet, when they were launching new services such as Syrup to establish a stronger foothold in the initial market, they did conduct relatively aggressive marketing and that led to greater marketing costs.

And as for the annual revenue guidance for 2015, as I said before, we still stand by our guidance. Basically when it comes to revenue, I believe the equation would be P times Q. And on the P side we believe that ARPU will be maintained the level of this year. And on the Q side, although we did see a short loss of market share, which was temporary, we believe that once the market focuses on the fundamental competitiveness that is products and services, we believe that our market share number will be recovered.

And if that is the equation for the MNO, additionally there is the revenue for our growth businesses, and once the new products and services in this area becomes more popular and expands, especially for the media and solution businesses, we believe that we will be able to see tangible results.

As for the possibility of raising our annual dividend, as I mentioned before, we have to take into consideration various factors including investment for growth, the Company's cash flow and the share buyback volume, so along with our decisions regarding the interim dividend, we believe that we will be able to communicate this with you during the first half of this year.

(interpreted) Hong-sik Kim, Hana Daetoo Securities. The following question will be presented by [Sim Lee Yang] from JPMorgan.

(interpreted) I have the following two questions. The first has to do with the less than expected numbers that we saw for the first quarter. Looking at the numbers I feel that there isn't a clear incentive for SK Telecom compared to its competitors. You terminated around 500,000 accounts; however, these numbers have still -- the marketing costs still haven't gone down and that was not the case for our competitors.

So I have concerns regarding the marketing efficiency going forward as well as some of your poor performances of subsidiaries including SK Planet. So my question is, will the poor, poor than expected numbers that we saw during the first quarter be continued into future quarters?

And my second question has to do with the Company's target of achieving enterprise value of KRW55 trillion without Hynix, and in fact I believe that in order to achieve this you will have to take specific and aggressive measures to increase your enterprise value. So I'd like to know your thoughts on whether this is in fact a valid target?

(interpreted) Thank you for your questions touching upon the very essentials of our business. I believe that the first question you asked can be interpreted as asking what really are the fundamental competitive edge of SK Telecom under a new competitive environment.

And if I may answer that question, I believe that when it comes to our competitiveness in the MNO business, it is, it would be inadequate to interpret it as saying that SK Telecom's MNO strengths have been different, have become different from that of the past.

During the process of adapting to a new competitive environment, in fact because SK Telecom, in terms of its size, is larger than its competitors, it is true that we may lack the speedy execution needed on the work sites in terms of adapting to change. However, we believe that this is an issue that can be naturally resolved with time.

And in the new paradigm, while our fundamental competitiveness continues to be of great importance, we also believe that we need to focus on new competitive factors.

We believe that in the future the ability to meet the customers' needs by tailoring to our customers and developing and delivering such customized services will become more important. We also believe that because we are now in an era where telcos cannot do everything by themselves, our ability to form partnerships and cooperate with other parties will become more important.

The slogan that we have of wanting to transform ourselves into the next generation platform player is based on a open ecosystem. And in this ecosystem, the ability to cooperate with third parties will become very important.

When you look at the current market share structure, the number stands at 5 to 3 to 2; and when we take into considerations various partnerships, I believe that -- and we also have to take into consideration the network. So, when we take that into consideration, I think the actual gap of the market share has to be interpreted as close to 25 to 9 to 4.

And so, in a nutshell, you could say that the competitive paradigm is shifting from a quantitative one to a qualitative one. And under these circumstances I believe that it is actually an opportunity for SK Telecom's competitiveness to shine even brighter. And also I would like to add that SK Telecom has the most -- the longest experience in this field and we are well prepared for the new paradigm.

And to touch upon your question regarding the KRW55 trillion enterprise value target, currently SK Telecom's value is valued at TRW22 trillion to KRW23 trillion.

On top of the enterprise value, we believe that the most important factors will be profitability and room for growth. And under the current market environment, we believe that the profitability will positively impact SK Telecom.

And next as for the growth potential, the businesses that we are carrying out, especially the lifestyle enhancement platform which is a part of our target to become a next generation platform business, I believe that these can be welcomed and valued at its adequate value by the market in the future. And once it does show, it can be reflected in the valuation as well.

Currently, SK Planet is entering global markets with its commerce capabilities and it is putting in various efforts to expand its variety of businesses including the auto area as well. Although the short-term results may not be as tangible, I believe that when you take into consideration the valuation numbers of its competitors or similar companies, I believe that SK Planet's valuation can be valued at its adequate value in the future as well.

(interpreted) The next question will be given by [Sim Lee Yang]

from JP Morgan and the following question will be provided by Sam Min from Morgan Stanley.

(interpreted) I have two questions. The first has to do with enterprise value and your earnings result. I believe that the enterprise value is something that the market evaluates and that it is the Company's responsibility to take care of its numbers including cost cutting efforts among others. However, you have suggested a enterprise value target before that and one of the reasons I believe that the market is concerned about your earnings has to do with of course the competitive environment, but the regulatory environment as well.

Currently, there are talks about a fourth telco operator in the market, and although I think that in terms of feasibility, in terms of its business, it will be difficult for the fourth telco to be viable. If the government decides to still go forth with the fourth telco, I wonder what would be asked of SK Telecom as a dominant player in the market. For example, will you have to -- when you are providing your network, will you be the one to voluntarily decide on the wholesale price for that?

My second question has to do with your comment on planning to buy back shares worth of KRW400 billion within the next year? Currently, when you look at the stock prices of SK broadband and telecom, they have fallen quite a bit and in fact I believe that it has gotten lower than SK Broadband's putback option price. If this were the case, and of course I know that stock prices are bound to change, but if due to the stock price fall there is a greater volume of putback shares for SK Broadband, will you still stand by your comment to buy back shares within the year?

(interpreted) With regard to your first question of the fourth telco, if and I know that you mentioned if that happens what would SKT be required to do. As for that matter, currently we have not had anything notified by the government and as of now through media reports we understand that the government is currently still reviewing what to do.

So, at this particular juncture I would have to ask for your understanding that it would be difficult for us to discuss further on this matter. However, we do expect that the government will decide on it in consideration of various important factors including the competitive situation and the development of the telecommunications market as well as customer protection.

And as for your second question regarding the share buyback, with regards to the exercised appraisal rights, we will have to wait until May 25th to assess the exact volume. However, at this particular juncture, we believe that the KRW400 billion worth of share buyback will be possible.

(interpreted) The next question will be presented by Sam Min from Morgan Stanley and the following question will be given by Jee-hyun Moon from KTB Daewoo Securities. Mr. Sam Min, please go ahead sir.

Yes, hi. I have a quick question on your mobile service revenue decrease. I just wanted to know how much your signup fees revenue decreased by in absolute amount year over year.

My second question is on the delay of your dividend announcement. I understood your previous comments by your CEO that the share buyback that you would pursue post SK broadband buyout would be a separate shareholder return policy and that the dividends that you will consider will be excluding this share buyback. So, why would you need to consider the cash from this treasury buyback on SK broadband is my second question? Thank you.

(interpreted) To first answer your second question regarding the share buyback in relation to SK Broadband acquisition and shareholder return, as was explained by the CEO and through other means, we will be refilling the treasury shares disposed related to the SK Broadband share exchange over the next two years, and we will also be considering additional share buyback regarding shareholder return.

And if I may explain in a little bit more detail, when we mentioned the KRW400 billion share buyback, this is not entirely the refilling of the shares that will be used to conduct the share exchange with SK Broadband. So, again it is a combination of our shareholder return policy as well as what is needed as a result of the share exchange with SK Broadband.

And another thing that I have to mention is that regarding a share buyback in regard to shareholder return, we will have to consider various factors including again the volume of exercised appraisal rights and the changes to our operational environment during the next two years as well as investment opportunities for further growth.

And secondly to answer your first question regarding the exact number of the signup fee revenue decline, I would like to ask for your understanding that we would like to contact you directly from the IR team.

Yes, if I can just follow up on the signup fees, the way I understood it, and I got this from your IR team, is that there was only KRW20 billion to KRW30 billion coming into this quarter. So, that doesn't quite explain why mobile service revenue was down on a year-over-year basis. So, I just wanted to get some more color because based on the data that I got from the IR team, it appears that there is something more beyond the simply decrease in signup fees. Thank you.

(interpreted) Regarding the numbers related to the signup fee, I again have to ask for your understanding that it is difficult for me to give you exact and detailed numbers at this time. However, when you look at the numbers year on year, there was the issue of the signup fee, but also last year the interconnection fee also declined which lead to a decline in interconnection profit as well and this was reflected in this quarter's numbers.

(interpreted) The next question will be presented by Jee-hyun Moon from KTB Daewoo Securities and the following question will be provided from Dan Kong from Deutsche Bank. Ms. Jee-hyun Moon, please go ahead, madam.

(interpreted) I have the following two questions. The first has to do with your cost outlook. I know that you will be reflecting the numbers related to the voluntary retirement in the second quarter, but can we expect the cost to take a downward trend in the second half of the year.

My second question is, there are many questions currently regarding the poorer than expected ARPU number and I know that SK Telecom is putting in efforts to increase data traffic regarding its media services including Btv mobile. So, my question is, do you believe that such OTT usage and data traffic can contribute significantly to the ARPU numbers going forward, and is this going to be your concentration in terms of your strategy in the future as well?

(interpreted) To answer your first question regarding cost, as you mentioned in your question, the numbers related to the voluntary retirement will be reflected in our second quarter numbers, and that is because the retirement was concluded early April. We believe that there will be a one-off reflection of about KRW110 billion in labor cost. And at this time we do not foresee any other items in terms of cost increase. And as was mentioned before during the conference call, the marketing cost is expected to trend down during these quarters.

Also I would like to add that regarding the voluntary retirement going forward, we believe that there will be about KRW45 billion cost cutting effect per year in terms of labor costs.

And as for your second question regarding whether the media traffic increase will impact our ARPU numbers, for the consumers that use a lot of data services such as Btv mobile or YouTube, these customers tend to opt for higher price plans. And we believe that because these consuming patterns are constantly increasing, we believe that in the future this type of data usage increase will have a positive impact on our ARPU numbers and that our strategies regarding the media business is in line with this expectation.

(interpreted) The last question will be presented by Dan Kong from Deutsche Bank. Mr. Dan Kong, please go ahead sir.

(interpreted) I have the following three questions. The first question has to do with the discrepancy between numbers announced by the Ministry of Science, ICT, and Future Planning, and numbers announced by the telcos. For example, SK Telecom announced your subscriber number to be at 28 million; however, according to the ministry's numbers it stands at 26 million.

Also regarding the tariff discounts provided in substitution of the subsidies, the numbers provided by the ministry says that almost half of newly acquired subscribers are opting for the 20% discount, but that is not the case according to the numbers provided by the Company.

My second question is, recently the SK Group is conducting various reorganizing efforts and as one of its most representative companies, I would like to know what the role is of SK Telecom within the SK Group.

And lastly, my third question has to do with the media business growth. Is your strategy to achieve growth in the media business focused on your marketing efforts or investing in growth areas?

(interpreted) Regarding your first question, it will be answered by the head of marketing strategies present here with us.

(interpreted) To answer your first question regarding the discrepancy between the numbers announced by the ministry and by the companies, in fact the numbers announced by the ministry includes the 2.3 million MVNO subscribers, and it is in fact excluded in the numbers provided by us. So that is where the discrepancy comes from.

And secondly regarding the ministry's announcement of how many subscribers are opting for the 20% tariff discount, because there was pending demand initially -- that because of the pending demand initially the numbers were rather high, but recently the number is in fact decreasing; however, because it hasn't been quite a long time since the announcement of this 20%, we will have to wait and see as to the exact customer trend.

(interpreted) And let me address your second question regarding the reorganizing of the SK Group. I know that as of now there are various regulations in the market regarding the reorganization of the SK Group and its companies. However, as was mentioned by the CEO last month in the press conference, currently there are no plans for SK Telecom to conduct restructuring.

And as for the third question, the head of media business division will answer the question.

(interpreted) This is Jong-Won Kim, head of the media business division. To answer your question about our strategies for the media business, whether it is focused more on our marketing activities or investment and content, as the CFO mentioned, the acquisition of remaining shares of SK Broadband was decided to push forward with the media business in a more integrated manner.

And as for the future businesses, we believe that we will go both ways, in other words, expanding our subscriber base will be the marketing activity side and based on the expanded market, expanded subscriber base, we wish to maximize the profit that will be generated through the platform. Especially based on the platform profit, we will drive stronger regarding our content capabilities as well. So, in a nutshell again you could say that we will go both ways, utilize our marketing activity capabilities as well as investment in content.

(interpreted) The final question will be provided by Rose Kim from Macquarie.

Hello, I am sorry, this is David Lee, it is not Rose Kim. Thanks for the opportunity. I would like to ask what management expects for SK Planet's sales and OP for this year. I would also appreciate any color on its key businesses such as 11th Street and the other platform businesses as I was under the impression that its 11th Street mobile platform buildup was complete and margins would improve from this year. My concern is that the rising costs from other platforms are offsetting the improvement in 11th Street this year. Thank you.

(interpreted) First to answer your first question, I would like to present the head of SK Planet strategy, finance management to answer the first question.

(interpreted) Hello, this is [Chun-yo Kim] head of SK Planet's finance strategy. Currently, SK Planet is pushing forth with its core businesses with the target of maximizing its enterprise value in mind as well as in line with creating a win-win partnership with SK Telecom.

And to achieve this, rather than focusing on short-term profits, we are focusing more on our efforts to secure the growth engine for the future including expanding our subscriber base.

And again I have to reiterate that we are focusing more on the power indicators rather than short term earnings. But, because you asked, I would like to give you some detailed numbers.

First the revenue for SK Planet in the first quarter 2015 stands at KRW369.1 billion, which is around 18% to 19% increase year on year. And responsible for this growth stand OK Cashbag and the 11th Street business' growth. And going forward, we expect an annual revenue growth of around 10%.

As for the operating profit, because SK Planet is focusing on driving its next commerce business area, there are inevitable investments needed with that. So, we believe that going forward the operating profit level that you saw up until now will be maintained in the near future.

To give you a little bit more detail, the profitability of our existing businesses including 11th Street and OK Cashbag is improving; however, there are investments in the next commerce areas including our service Syrup that offset this increase in profitability. So, again, we think that the operating profit will be maintained at the current level.

(interpreted) This concludes the earnings conference call for Q1 2015. Thank you.

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.