SK Telecom Co Ltd (SKM) 2016 Q2 法說會逐字稿

(interpreted) Good afternoon, I am Jeong Hwan Choi, the IRO of SK Telecom. Today's conference call will consist of the presentation on the earnings results for Q2 of 2016 and the future management plans and strategic direction by Keun-Joo Hwang, CFO, and Executive Vice President of the Strategy and Planning Division, followed by a Q&A session. To help your understanding, we have here with us relevant executives.

Today's call will provide consecutive interpretation. We want to remind you that all the forward-looking statements are subject to change, depending on the macroeconomic and market situations.

Let me now present Mr. Keun-Joo Hwang.

(interpreted) Good afternoon, this is Keun-Joo Hwang, Executive Vice President of Strategy Planning Division at SK Telecom.

Let me first the consolidated earnings highlights for Q2 2016. Revenue recorded KRW4.2673 trillion, due to revenue growth of subsidiaries including SK Broadband, it increased by 0.3% year-over-year and 0.9% quarter-on-quarter.

Operating income recorded KRW407.4 billion, down 1.3% year-on-year and up 1.3% quarter-on-quarter. Although non-consolidated operating income recorded KRW478.2 billion, up 20.7% year-on-year, increase in consolidated operating income was limited due to losses among subsidiaries, including SK Planet.

EBITDA increased 0.7% year-on-year and quarter-on-quarter recording KRW1.1569 billion. Net income fell by KRW100.69 billion to KRW291 billion due to a smaller equity method income on SK Hynix.

With that, I will now move onto major achievements per business area and the strategic direction of the Company. First of all, this past May, we acquired a total of 60 megahertz in the 2.6 gigahertz and by participating in the Spectrum option. Through a well-planned bidding strategy based on our past successes, we won the bid at a lower cost compared to previous auctions. Considering the investment for the newly acquired Spectrum, we expect this year's CapEx to be approximately KRW2.1 trillion, slightly exceeding the guidance provided early this year.

The M&O business maintained a stabilizing trend in the second quarter, despite the continued launchings of iconic devices, the market size remained a similar level to the previous quarter, at around 790,000 subscribers per month, and there were no signs of excessive competition triggered by M&P. Handset upgrades continued to represent more than half of the market and the portion of high ARPU customers is continuing to rise through our efforts to grow the topline even in a stable market environment.

SK Telecom is also continuing to lead the second device market, recognized as a successful model of new market development, now over 890,000 second device users are enjoying various services such as the T Outdoor and the Kids Phone service, which was recently branded as [Coo Kids]. Reaching beyond subscriber additions, we expect the service to grow into a platform that is extended to related services, including field trip programs and games.

Our efforts to achieve tangible results in the performance, our new growth engine, also continue. As partnerships grow in the smart home arena, we are strengthening our business momentum through projects that include providing built-in smart home solutions in [Tongtan] New Town, through joint efforts with major players in the industry, such as Hyundai Engineering and Construction. Going beyond simple device controls, we will upgrade smart home functions to provide customized services that cater to the different lifestyles of residents.

In early July, we became the first company in the world to commercialize a hybrid network, dedicated exclusively to IoT. Remote reading of gas and electricity meters, lighting management, and emergency notification services for schools and manhole controls, are areas that will be commercialized first. And we plan to reach 4 million IoT accounts by the end of 2017. Furthermore, we plan to induce a boom in new IoT businesses through efforts such as offering partner programs and distributing 100,000 free LPWA exclusive modules, thereby reorganizing the overall environment for partner companies to propose and commercialize ideas more easily.

SK Broadband's IPPV business, the heat of our media platform strategy, has enhanced its fundamental competitiveness and is producing strong results. During the first half of this year, it acquired 280,000 new subscribers in net terms, the highest in the market. The mobile media service, Oksusu, is seeing more unique visitors and longer usage hours, thereby contributing to the revenue growth. Through stronger content and mobile competitiveness, the Company will continue to further expand the foundation for business as a media platform company.

With T-Map now offered free to all users since July 19, new profit models will be discovered through location based big data with a larger user base. It has already branched out into services such as T-Map Taxi and T-Map public transportation as well as car insurance premium discount services based on driving patterns. Going forward, we plan to focus on finding new business models in the connected care business and other similar areas through partnerships with auto companies.

Along with T-Map, our decision on the complete openness of services, including T-Phone, Oksusu, the mobile media service launched earlier this year, and cloud products, which will be newly organized, conveys SK Telecom's determination to transform into a platform company. Rather than resting on achieving the short-term goal of acquiring users, we will focus on fostering each service so that they grow into core assets of our lifestyle enhancement platform that meet the different needs and various lifestyles of users.

Let me move onto SK Planet's commerce business. 11th Street's total unique visitors of the application and the website is the highest in the market. With the transaction volume also on the rise, we believe that 11th Street will continue to fully demonstrate its capabilities, including its mobile strengths.

As for SK Planet, while we expect a certain level of costs to be inevitable in reaching the management plan, it will continue -- it will contribute to the consolidated profit in the future through continued efforts to strengthen the competiveness and manage costs efficiently. Lastly, regarding shareholder return, the interim dividend for 2016 was decided at 1,001 at today's meeting of the Board of Directors, the same amount as the previous year.

We truly appreciate the investors and analysts for your support and the Company will do its utmost to continue to grow. 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 Choi Nam-kon from Yuanta Securities. The next question will be given by Mr. Yang Jongin from Korea Investment and Securities. Mr. Chu, please go ahead, sir.

(interpreted) Thank you for the opportunity. I have the following two questions. The first has to do with the recently rejected CJ Hellovision M&A deal. I think that the market had expected this to be a very critical deal for the current CEO. So I'd like to hear about what the Company thinks of the current status and also if you have contingency strategies for growth. It could be about the media business or it could be a bigger picture.

My second question has to do with the commerce business area. Many investors today are interested in external funding or external investment plans for this particular business area. So if you could give us an update on that issue please.

(interpreted) Thank you for your questions. Let me address your question on the CJ deal first. Today, the Ministry of Science ICP and future planning made it public that the overall review process regarding this particular M&A deal is now closed. And until now, SK Telecom has done everything in its power to emphasize the legitimacy of the M&A deal, and we have continued to persuade and request the approval of this deal from the government side. However, it is quite a surprise and also unfortunate that the FTC finally disapproved the deal.

However, we do fully accept the results and we stand by our plans in the future to continue to contribute to the growth and development of the domestic media industry. We also stand by our plans to transform into a next generation platform player that were announced beginning last year. And we will see to it that we achieve the strategies to become a platform player that encompasses various platforms including lifestyle, media, IoT, and transportation.

Especially regarding the media business, we will focus on growing the topline of SK Broadband, as well as enhancing the content competiveness in order to enhance fundamental competiveness. During the first half of this year, SK Broadband ranked number one in terms of net subscriber additions for IPTV and as for the accumulated total number of subscribers, it stands at 3.76 million.

And as for the mobile media service, Oksusu, we currently as of the end of June, there are 3.1 million unique visitors as well as -- and that's for the usage time on average per month. It's 206 minutes. Based on such achievements, we will continue to strengthen our media platform and also we will look at various options and review them, and be sure to communicate with you when it becomes more concrete.

Let me now address your second question, which had to do with the funding for SK Planet. I know that recently there was some coverage in the media regarding our failure to attract Chinese investment. However, I want to say that this is not true and that current discussions are ongoing. Again, I reiterate that active discussion are taking place as we speak and as for the actual timeline, the size, and the conditions for the investment, we will be sure to communicate that with you when it becomes fixed.

And because as of the end of June, SK Planet has about KRW400 billion worth of cashable assets, operation for 11th Street is completely manageable. And adding to that, I want to tell you that options for SK Telecom investing or funding this is not an option currently under review.

(interpreted) The next question will be given by Mr. Yang Jongin from Korea Investment and Securities. The following question will be given by Mr. Kim Hoe Jae from Daishin Securities. Mr. Yang Jongin, please go ahead, sir.

(interpreted) Thank you. I have the following two questions. The first question has to do with the ARPU outlook for the second half of this year, despite a growing portion of monthly discount price plan users and second device accounts, we are seeing a growth in users opting for unlimited data price plans as well as per capita data usage. And so I'd like to hear about the ARPU outlook for the second half.

And my second question has to do with SK Planet's competitive edge compared to its competitors. Is it the ability to gain more resources or would it be their big data assets? So I'd like to hear about that.

(interpreted) Let me first address your questions regarding the second half ARPU outlook. Let me first brief you on the more positive factors. Currently, we exceeded the 10 million number for users on the band data price plan, and as for data usage of LTE subscribers, it increased dramatically to reach 4.6 gigabytes now.

And another positive aspect for ARPU outlook is that subscribers subscribed to price plans above the 59 data plan are continuing to grow. However, as has been discussed quite a number of times before, with the growing number of second device accounts as well as a larger discount provided for the monthly discount price plans, as well as the growing number of IoT accounts, there are negative factors that will impact the ARPU.

Currently, when you compare the average ARPU of 36,000, the ARPU of second devices are at around 9,500, which is very small. So although growing second devices do indeed contribute their revenue, it does have a negative impact on the ARPU itself.

According to the growing IoT business area, which is of course one of the core business areas that we plan to focus on, it indeed has a rather negative impact on the ARPU. However, because of that, SK Telecom believes that the ARPU number, or the ARPU growth is not an exact indicator, therefore we want to focus more on the growth of the total revenue and the profitability improvement. And these two are the areas that we will focus more on.

And secondly, answering your question about SK Planet's competitive edge compared to its competitors. First, we will focus on increasing our competiveness in the mobile arena. The strongest driver of the ecommerce market as of now is the mobile commerce area. Currently, 11th Street is an undisputed leader in terms of mobile and it also will continue to increase that power going forward.

So when we integrate the mobile power that 11th Street has with SK Telecom's core competitiveness, we believe that we can continue to strengthen the mobile presence of 11th Street. We will also increase and maximize the synergy by connecting the service to various O2O businesses that SK Planet has. We have a very strong O2O services, which has OK Cashbag Syrup and Gifticon, which can be utilized and also within SK Planet, over 100 people are dedicate in organizations for the big data. So this is another asset that can well be utilized.

And lastly, we will fully utilize the membership system that we have. We have various assets that we can use in terms of membership programs, including the new membership program that began in July, as well as our various coupon related policies, which will all contribute to greater loyalty and retention of our customers.

We will continue to do our utmost to make sure that 11th Street becomes an undisputed leader in the market through transaction volume growth as well as confirmed purchases growth, focusing on its mobile presence. That concludes my answer to your questions.

(interpreted) Next question will be presented by Mr. Kim Hoe Jae from Daishin Securities. The following question will be provided by Mr. Ahn Jae-Min from NH Investment and Securities. Mr. Kim Hoe Jae, please go ahead, sir.

I have two questions. The first has to do with T-Map. I'd like to hear more about that, although it was briefly mentioned before. You opened the service free of charge to everyone beginning on July 19, and by doing so, you acquired 430,000 new subscribers within the week. I believe that this is part of your efforts to grow into a platform player. So I'd like to hear about the bigger strategy, including that.

And my second question has to do with the low-end phones. Recently, the Ministry of Science ICTN future planning announced the plan for policies on telecom market competition. So I'd like to hear of your thoughts on how it could impact SK Telecom.

(interpreted) Thank you. Let me first address your question regarding T-Map and the overall strategy regarding our platforms. As was mentioned during my opening speech, when it comes to platform services, including T-Map, T-phone, and T-cloud, among others, SK Telecom will completely open our services.

Going forward, we will promote an open business, a completely open business, open to all of our users when it comes to SK Telecom's platform business. However, we will put more thought on how we can better benefit SK Telecom subscribers. And in this context, we have decided to completely open the T-Map service free of charge to users regardless of their mobile carriers beginning from the 19th of this month, and fortunately, we were able to acquire around 500,000 users coming in from different carriers.

Regarding our overall strategies, after the opening of the T-Map service, I will hand the mic over to the relevant executive to answer that.

(interpreted) Hello, I am the head of the T-map business division. I think I could explain to you the platformization, so to speak, of T-map, in two branches. The first is to make sure that a large base of subscribers or users use it daily and use it often. Those are the basics of a platform business.

In order to have a large user base, use this service daily, it is most important for a navigation system to provide transportation information more fastly and very accurately, so SK, we have continued to invest in making sure to do and going forward, based on large scale of information collected through the platform business, we will continue our efforts to invest in enhancing the core competitiveness, the quality of our service.

And the second strategy has to do with the word expandability, because I believe this is a very important key word when it comes to a platform business. And not only just focusing on the critical factors in the T-map, in terms of its service and providing the data, we also plan to strengthen partnerships with third party companies in the fields of auto companies, driving transportation, insurance, car management, and parking.

We will do our best to make sure that we turn T-map into an effective platform as soon as possible and we will do our best in doing so. Thank you.

(interpreted) Let me now address your second question regarding the plan for policies on telecom market competition, which was announced by the Ministry of Science ICT and future planning on the 25th.

The policy includes various details, including lowering the wholesale price and also extending the usage of the Spectrum fees, among others. And as we understand it, we believe that at the core of the policy, rather than focusing on creating an environment for a fourth player to enter the market, we believe that it is focusing more on supporting the low-end phones.

Going forward, we will meet the policies, of course, and make sure that we create a mutually beneficial relationship with the MBNOs. And as for how such policies will impact SK Telecom, I will have the relevant executive answer that for you.

(interpreted) Hello, I am Lim Bong-ho, head of the life value strategy division. I think through the recent line of policies, there is definitely a positive change in the low-end phone market. However, I think it would be difficult to tell you exactly how it will be impacting the market. And I think that the impact it will have on the market will be depend on how the low-end phone companies utilize the recent policies to enhance their core competiveness.

Going forward, again, as was mentioned before, SK Telecom will make sure to maintain a mutually beneficial relationship with the MBNOs. And as for our own M&O business, through our offering of very competitive products and services, we will do our best to maintain the current place in our market.

(interpreted) We will hear from the next person.

(interpreted) The next question will be given by Mr. Ahn Jae-Min from NH Investment and Securities. And the following question will be presented by Mr. Josh Bae from UBS. Mr. Ahn Jae-Min, please go ahead, sir.

(interpreted) Thank you for the opportunity. I have two questions. My questions have to do, first, with the marketing cost and your earnings. We are seeing a more stable marketing cost expenditure beginning from after the second quarter last year. So I'd like to hear the outlook for the second half of this year. And along with that, please I'd like to hear about your earnings outlook as well.

My second question is, there was a lot of talk regarding the IoT business. So I'd like to hear more about that in terms of your strategic direction going forward.

(interpreted) Thank you for your questions. Let me first address your question regarding the marketing costs and earnings expected for the second half of the year. Last year, during the second quarter, our marketing costs was about KRW750 billion. And during the first quarter and the second quarter of this year, that number came down to a stable KRW720 billion. And this trend has continued from the second quarter of last year and with a more stable market and less market mobility, we believe that this trend will continue going forward.

We are very active in leading the overall market stabilization efforts. Also, the LTE migration is slowing and there are less needs for device upgrades and there are more users opting for mid to low end devices. So I believe that as of now, we do not see any critical factors for the market situation to change. Of course, in the second half, we do expect launching various iconic devices, including the Note 7.

Therefore, there could be a temporary fluctuation in the market. However, overall, we believe that reasonable competition will continue and the market will be stable. Therefore, we do not see any critical changes to the current marketing cost levels, which should be a positive factor for our earnings.

And next, let me briefly answer your question regarding the IoT business strategy direction.

(interpreted) Hello, I am the head of the IoT Solution Division. First of all, we expect the domestic IoT market size to grow up to KRW14 trillion by the year 2020. We will be focusing on the following four areas. The first is energy, the second is public services, the third is manufacturing, and fourth is car.

And secondly, we also wish to lead the market by offering various products and services in the smart home area, in partnership with various companies including those in the construction industry. And by -- through our hybrid network, we will be providing various networks and expanding the service into B2B, B2C, and B2B2C. And also by sharing our revenue, we will focus on making a truly open platform.

(interpreted) And if I may add onto that, the overall IoT strategy direction for SK Telecom would be rather than focusing on securing short-term revenue, we want to utilize the IoT business so that we can first of all secure greater data and secondly, provide -- develop and attempt various business models related to the IoT business and thirdly, create an ecosystem in partnership with various third parties, which will enable us to achieve the first and second goals. And by doing so, we will focus on creating actual business models and monetization after that.

We will now move onto the next question.

(interpreted) Next question will be presented by Mr. Josh Bae from UBS and the following question will be provided by Mr. Sam Min from Morgan Stanley. Mr. Josh Bae, please go ahead, sir.

Yes, thank you for the opportunity. I have two questions. First is on the earnings outlook for the second half and for next year. There is some concern about the additional Spectrum amortization costs that will kick in from late this year. And I think the depreciation could increase in the second half as well. If you could share with us, what are the positive factors that could help offset these cost increases and what's the management's view on when we could see a rebound in the earnings.

The second question is regarding SK Planet. I think SK Planet getting external funding could help give us some comfort that there wouldn't be any further capital injection from SKT. If we look beyond this, could you share with us your view on how SK Planet will eventually benefit SKT and the SKT shareholders? Should we wait for the time when SK Planet can contribute meaningfully to SKT's earnings? Or could SKT crystalize the value in SK Planet through the sale of its existing shares? If you could give us a roadmap on how you expect SK Planet to benefit SKT that'd be very helpful.

(interpreted) Thank you for your questions. Let me address you first question regarding the depreciation costs related to the newly acquired Spectrum. Although we are content with the results of the Spectrum auction, it is true that inevitable increase in network CapEx and depreciation costs will incur. However, regarding our investment needed in the newly acquired Spectrum, we have various technology developments through our past experiences and through cost cutting efforts. We will manage the CapEx so that it does not exceed too much what we had in plan originally.

And as I have emphasized quite a number of times before with a larger base of high ARPU customers and second device accounts, and a greater data usage, including multimedia, and the ARPU growth as a result of that, we believe that we will be able to accommodate the investments needed.

And secondly, addressing your question on how SK Planet will contribute to SK Telecom. SK Planet will focus on the ecommerce business area and ecommerce business area exclusively. Especially will focus on strengthening its mobile competiveness and it will also be focusing on 11th Street's global market presence. Already in Turkey, 11th Street is number one in terms of transaction volume and it is the second largest player in countries including Indonesia and Malaysia.

The target for 11th Street is to become the number one player in the domestic market in terms of transaction volume by the end of this year and as a result, in order to meet that target, a certain level of cost expenditure will be inevitable. However, once the market position is secure, through various things that will happen as a result of that, which includes a lower transaction commission, we believe that the business will break even within about two to three years.

Of course, this could depend on various factors, including the funding plans and 11th Street's market position in the future. however, I want to emphasize that all options, including an IPO or anything else, will put our maximizing shareholder value first. Again, want to say that that would be the number one priority when it comes to us reviewing various options.

(interpreted) The next question will be given by Mr. Sam Min from Morgan Stanley. Then, the following question will be presented by Mr. Dan Kong from Deutsche Bank. Mr. Sam Min, please go ahead, sir.

I have three questions. My first question is on dividends and given that now, SKT will not be merging with CJ Hellovision or acquiring CJ Hellovision, would management and Board of Directors considering increasing dividends this year considering that there's ample cash in the balance sheet?

And then my second question is on your cash management for this year. And obviously, there is 2 trillion in cash and equivalents as of the end of second quarter. Your EBITDA is 1 trillion per quarter and capital expenditures should be quite low at 2 trillion levels. So what do you plan on doing with that cash? If you kind of expand on that. And then my third question is on 11th Street and SK Planet. Can you give us more color on the profit or loss outlook of 11th Street as well as SK Planet for this year, as well as maybe next year as well. That's it. Thank you.

(interpreted)I will be answering the first and second question, and the third question will be answered by our Executive from SK Planet. First of all, regarding possibilities of increasing the dividend as a result of us not going through with the M&A deal with CJ Hellovision, we believe that these two are separate issues.

Of course, because we have to take into consideration various factors when it comes to increasing the dividend that it would be difficult for me to give you a definite answer at this particular time. However, we do need -- we are planning to transform into a next generation platform company and accordingly, investment will be inevitable. So considering all of these factors, I think that it is true that an increase of dividend within the short-term would be difficult.

However, the management will do everything that it can to maintain the current level of the dividend, at least, and when our growth and profitability become more improved and that becomes more concrete, we will review this again. And secondly, I will answer your question regarding the cash management for this year.

In the beginning of the year, we began from KRW600 billion and now our cashable assets stand at KRW1.03 trillion. Indeed, if the CJ deal had went through, we did have plans to pay for that with this cash as well as some limited borrowings. However, as we all know, there's no longer a need for that. Now, when we look at the recent results of the Spectrum auction, we have to pay the KRW1.4 trillion for the newly allocated Spectrum and there is also a KRW570 billion due to the reallocation of the 2.1 gigahertz band. And so considering the fact that we have to pay this by the end of this year, pay the 25% of that by the end of this year, that amounts to about KRW470 billion. And I think that that is in the similar range of what we had originally planned to be using when and if the CJ deal had gone through.

In a nutshell, within the KRW1 trillion of cash that we currently have, we will be paying the fee for the allocation of the newly acquired Spectrum within the second half and we will efficiently manage what is left from that. And to answer your third question regarding the more detailed outlook in terms of SK Planet's earnings, I will hand the mic over to our executive from SK Planet, Pak Kan Shu.

(interpreted) Hello, I am the CFO of SK Planet. Let me briefly give you the overall numbers of 11th Street and SK Planet. First, when you look at the operating profit of the SK Planet for 2Q, it may seem that the -- it looks quite bad compared to the previous quarter. However, when we consider the allusion effect of the business split, the actual amount of the deficit, quarter-on-quarter, was around KRW7 billion, which is not that bad when comparing to market expectations.

Although I know that it will be very helpful and we also hope that we wish that we could give you more detailed numbers regarding the marketing cost outlook, but as you know, it is directly related to the actual marketing cost expenditures. So I cannot help but ask for your understanding in that I cannot give you a detailed outlook.

However, what I can tell you is that, again, as was mentioned by CFO of SK Telecom, we do have a target to become the number one company in -- within a short-term and obviously, we believe that a certain level of loss is inevitable in the process. However, with greater transaction volume, we are seeking greater revenue streams, including commissions on sales and advertisements.

And we are also putting in various cost cutting and to make our cost expenditure more efficient, including marketing costs, expended differently per product category, as well as a differentiated offering of different coupons according to the membership programs that we have. And these efforts will lead to a stronger loyalty and retention from the customer side, and overall, it will contribute to a stronger business. Again, we want to tell you that we will do everything that we can in order to minimize the losses in the short-term.

(interpreted) The next question will be presented by Mr. Dan Kong from Deutsche Bank. And the following question will be presented by Ms. Moon Jee-Hyun from Mirae Asset Daewoo. Mr. Dan Kong, please go ahead, sir.

(interpreted) I know that a lot has been discussed regarding SK Planet, but I have just two more questions on that. First, I want to ask what are some of the indicators that you are looking at specifically in order for you to say that SK Planet has finally succeeded. And I ask this because when we looked at various data, including the data put forth by the FTC, you have already become the number one player in the industry in terms of transaction volume in 2015. And you are also the number one company in terms of monthly users. So I want to ask just how much or how big of a success are you thinking about?

And my second question is, I believe that there is a lot of interest in SK Telecom in the market because of SK Planet. However, in speaking from an analyst, it is very difficult for us to project an adequate evaluation for SK Planet because of lack of data. So I want to ask, do you have any plans to maybe help us do that, if you can provide us some data, in order for the market to accurately evaluate the value of SK Planet.

(interpreted) Thank you for your two questions. I will make my answer (inaudible). In fact, according to what specific data you are looking at, the rankings of companies within the ecommerce industry is actually quite fluctuating. I think what we can say is what SK Planet is aiming to become is an undisputed leader in the market. In other words, to become a leader no matter what data you look at.

And when I explained is the -- our short-term target is to become the number one ecommerce player in the domestic market. And when it comes to the mid to longer term target, we do not know how long this will take, but our ultimate goal is to make 11th Street one of the top three retailers in Korea. And as for relevant indicators, there are two things. The first is the size and the percentage of confirmed sales volume and the second would be under current trends, how well we do on the mobile side.

And secondly, I'd like to address your question on how we could further support you or the market to adequately evaluate SK Planet. First of all, I believe that rather than focusing on how it is evaluated by the market, focusing on the business itself is what should be prioritized. It is not to say that we do not think about such issues as how better we should be communicating with the market and with what content we should be communicating with the market. However, there are some difficulties, realistic difficulties entailed in that process.

And so once we reach certain goals and in due time, we will do everything that we can to effectively communicate various numbers and data with the market. Thank you. I hope that answered your question and we will hear from the next person.

(interpreted) The last question will be presented by Ms. Moon Jee-Hyun from Mirae Asset Daewoo. Please go ahead, ma'am.

(interpreted) Thank you for the last opportunity. I have two questions. The first has to do with users opting for the monthly discount price plans. We are seeing decrease in revenue and marketing costs year-on-year, which I believe means that there are more users opting for the monthly discount plan. So I'd like to know about your outlook regarding that issue. And my second question has to do with investing in Spectrum. Various organizations and companies including Qualcomm are talking about an early adoption of the fifth generation network. I'd like to hear what SK Telecom thinks on that.

Thank you for your questions. I will first address your question regarding the monthly discount plans. First of all, we do -- we are putting our heads together in terms of what we should do regarding this particular issue. At the time of the adoption of this new plan, which is the second quarter of 2015, about only 10% of new handset upgrades opted for the monthly discounts. However, after a year has passed, as for SK Telecom, now 35% of new handset upgrades are opting for the monthly discount plans.

And when you look at the total subscriber base, this number is -- represents 14%. And because we have in schedule launches of iconic devices during the second half, we do not think that the percentage of subscribers opting for the monthly discounts will decrease greatly. But although the more subscribers might opt for the monthly discount plans due to launchings of iconic devices, that also means that they will be opting more for the higher end price plans. So I do not think that this particular phenomenon only has negative impacts for the Company.

However, SK Telecom will -- we plan to manage the portion of subscribes on the monthly discount plans to be below the current level. And as for our thoughts on the adoption of the sixth generation network, First of all, we expect the standardization process for the technology to be concluded in 2018 and its commercialization by 2020. By the end of this year, we will establish the rollout of the test network in order to actually test the technologies for 5G and we are currently undergoing the technology development process for that, as we speak. And in July, with Ericsson, we have completed the development for the equipment to do that.

I will have the executive from the network strategy to give you a more colorful outlook on what SK Telecom thinks of the adoption of 5G network.

Hello, I am Choi Seung-won, head of the network division. 5G aims a very fast speed of at least 1 gigabyte per second and I believe that this technology can be applied to various potential businesses including the unmanned vehicle, artificial intelligence, and sensing technology of space and video. However, when it comes to the timeline of 5G network rollout, we still stand by the plan that it will probably be standardized in 2018 and commercialized in 2020. Last year, we were the first to provide an LT service with a speed of 500 Mbps, and this year, we push that up to 1 giga-BPS.

And we also have in preparation -- we have already prepared technologies that will allow for the recently unveiled two way technology of 60 Mbps. And this is talking about Spectrum bands that are not adjacent to each other. They're separate. So we have this technology already in preparation. As you can see, we are ready in terms of our ability to provide the necessary speed of LTE service that can maximize the efficiency and effectiveness of the 5G network before its commercialization. So you could say that we are ready and that we will be providing the necessary services in time with the adoption of 5G.

This concludes the earnings conference call for Q2 2016. 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.