SK Telecom Co.,Ltd
Q1 2013 Earnings Call Transcript

Published: 2 May 2013

[Operator:]

[Korean] Good afternoon. Welcome to the conference call for the Fiscal Year 2013 First Quarter Earnings Results by SK Telecom. This conference will start with a presentation followed by a Q&A session. And now, we'll begin the conference of the fiscal year 2013 first quarter earnings results by SK Telecom.

[Young-Gyu Park:]

[Korean] Good afternoon, my name is Young-Gyu Park, the IR of SK Telecom. Today's conference call will consist of the earnings presentation by our CFO, Soo Cheol Hwang, on the earnings results of Q1 2013 as well as future management plans and strategic direction, followed by a Q&A session. [Korean] To help deepen your understanding, we also have executives from the relevant business units with us. [Korean] The conference call will proceed with consecutive interpretation. Let me remind you that all the forward-looking statements are subject to change depending upon the macroeconomic and market conditions. With that, let me invite our CFO.

[Soo Cheol Hwang:]

[Korean] Good afternoon, my name is Soo Cheol Hwang, the CFO of SK Telecom. [Korean] Let me first walk you through the consolidated financial results for the first quarter. [Korean] Revenue recorded KRW 4,112.6 billion. The seasonal factors such as less number of working days led to a 2% reduction in top line quarter-on-quarter but declining number of LTE subscribers, together with the growing new businesses, including B2B solutions business, expanded the revenue by 3.6% year-on-year. We anticipate such upward trend of the top line to continue going forward. [Korean] Operating income marked KRW 410.6 billion, coming down by 17.8% year-on-year due to the higher depreciation and amortization from the expanded investment and the temporary marketing expense hike during Q1. In the meantime, the EBITDA posted KRW 1,092.6 billion, only edging down by 1.4% year-on-year. Since mid-March, the market is maintaining a stable trend. We expect to stabilized the market sentiment to continue into the latter part of the year through persistent efforts to change the competitive paradigm. [Korean] Net income came in at KRW 345.9 billion, rising 15.2% year-on-year, supported by the business growth of the subsidiaries including return to profit by SK Hynix. [Korean] Let me now discuss the strategic direction and results by business. [Korean] Today's telecom market is embarking on a true broadband based data era marked by the conversion from fixed-line to mobile, from voice to data and from one device to multi-devices, riding on the rapid proliferation of the LTE technology. Such trend is expected to expedite the high growth of the data-centric telecom business. At the front of such changes, SK Telecom is ceaselessly striving for business structured transformation. [Korean] The subscriber number increased 24% compared to the previous quarter with 9.33 million LTE subscribers. More recently, the number of our LTE subscribers surpassed 10 million for the fourth time in the world, opening up an LTE era in earnest. SKT's year-end LTE subscriber number in 2013 is expected to reach 15 million, far exceeding our original anticipation. [Korean] As a testament to our technological prowess, SKT was awarded the Outstanding LTE Contribution Award in February at the world-renowned Global Mobile Award at the World Mobile Congress. Also, by commercializing in the carrier aggregation technology, capable of enhancing the maximum speed to 150 mega BPs for the first time in the world, we have further strengthened our technology leadership in the LTE-Advanced era. The LTE-Advanced technology will usher in a high-speed mobile era, thereby bringing us closer to the true data era. [Korean] The recent change in price plan scheme led by SK Telecom is also accelerating the business structure conversion into a data-centric one. The introduction of the T&T Sharing price plan is not only maximizing the value of voice calls by our subscribers, but it's also leading the industry-wide transition into a data-centric price plan. Leveraging the smart network, we will also continue to discover new profit sources through innovative products and services such as full HD, 3D content and games playable across fixed-in mobile network. [Korean] In terms of competition, SKT is shifting the competitive pillars in a groundbreaking manner by moving away from the existing competition for mere subscriber acquisition towards competitive dynamics focusing on conversion to data-centric business and new services. Our retention subsidy program for loyal customers with more than 18 months subscription introduced in February, in addition to the cancellation fees for early termination of contracts, helped lay the foundation for subdued competition. The Data Gift Program introduced in February exceeded 1 million usages in just 70 days upon launching, being well received by our customers for higher data utilization. By moving away from the cutthroat competition, SKT is being true to its commitment to strive for the highest customer value and retention-based service paradigm shift. [Korean] The shift into a data business entails an across-the-board innovation in the telecommunications space comprising subscribers, networks, price plans and products among others. Such transformation will not only bring about imminent [ph] centric growth and profitability improvement but also ensure growth of the overall ICT industry in the mid- to long-term. [Korean] For SK Telecom, year 2013 will not only symbolize the innovation of our telecom business but also will be a pivotal year of reaping the fruit in our new business which is growing business in earnest. As we usher in the data era, aside from the existing communications business, new growth from B2B, media, health care and platform is accelerating as well. [Korean] As for the B2B business, the revenue reached KRW 386.3 billion during Q1, rising about 20% year-on-year. The top line of the solutions business marked KRW 83 billion, jumping more than 70% year-on-year. The B2B solutions business is expected to grow by 90% year-on-year during the entire 2013, achieving KRW 530 billion in revenue. More specifically, my shop 2.0 in the smart store solution, in addition to the mobile CDN in the smart cloud area, are creating success stories through continuous launching of new services. [Korean] In the case of the media, the IPTV business secured world's highest 600,000 mobile pay-TV subscribers supported by the exclusive broadcasting of the U.S. major league games and the launching of the high-definition mobile TV. The fixed-line subscribers also exceeded 1.5 million, enabling continuous upward trend. By 2015, we plan to acquire 7 million IPTV subscribers in total, including the mobile IPTV subscribers. [Korean] As for the health care business, which is expected to become one of the key profit sources for SKT in the future, the health management service, smart hospital solutions and medical diagnostic devices have been selected as the 3 strategic areas to focus on. In March, the world's first personalized health management program, interlinking the ICT technology with the medical services of the hospitals called Health-On, was officially commercialized. In April, the commercialized smart hospital solutions was launched at Bundang Seoul National University General Hospital, further widening the business foundation. [Korean] SK Planet has been focusing its efforts on the digital content and integrated commerce as its anchor business areas. In February, SK Planet merged with SK M&C, which specializes in the offline business and advertisement including OK CashBag and LBS business, thereby further fortifying its competitive edge in the commerce area. Through the integration and realignment of the existing business infrastructures of the 2 companies, the combined entity will maximize synergy by establishing the big data analysis platform, developing a commerce model interlinking both online and offline membership in reward points systems and by offering advertisement services for the future. Through such efforts, it will create a new commerce value leveraging the on and off-line integrated platform. [Korean] The 11th Street, which is at the heart of our commerce business, grew more than 3x year-on-year. When including the mobile 11th Street results, the quarterly growth merchandise sales recorded KRW 1.1 trillion. And in the digital content area, the T Store surpassed the KRW 20 million subscriber number in April since its launch in September 2009. The subscribers for T Map, Hoppin and Smart Wallet also maintained a steady increasing trend on a quarter-on-quarter basis. [Korean] In the global market, the open market business [indiscernible] bill, jointly pursued with a Turkish company, [indiscernible] Holdings since last year was formally launched in March, leveraging the operational know-how of the 11th Street. Through localized services, we are embarking on a full-fledged market entry. [Korean] Dear investors and analysts, [Korean] 2013 is a critical year for both SKT and the telecom industry as a whole. SK Telecom will provide innovative offerings across the entire lifestyle of the customers while shifting the competitive paradigm to discourage exhaustive competition. We will work hard to deliver visible results from our future growth engines such as B2B solutions, media and health care, among many. We will also ensure a leap forward by SK Planet, leveraging the merger with SK M&C. [Korean] I would like to extend my appreciation to all the investors and analysts for your unwavering support for SK Telecom. Thank you.

[Young-Gyu Park:]

[Korean] We will now begin the Q&A session. Please go ahead with questions.

[Operator:]

[Operator Instructions] [Korean] The first question will be provided by Mr. Josh Bae from UBS. And the next question will be provided by Mr. Yang Jong in from Hanggul Investment Securities.

[Josh J. Bae:]

I have 2 questions. First is regarding the competitive environment. It appears the increased competition led to the higher marketing costs in the first quarter. If you could share with us your observation regarding the competition levels in April and early May that you've seen so far and also, what trends you expect going forward. That would be very helpful. My second question is regarding the spectrum allocation. The regulator discussing allocating more spectrum to the wireless operators this year, so if you could share with us when you think the auction will be and any views you may have on the method, et cetera? [Korean]

[Soo Cheol Hwang:]

[Korean] Let me first address your first part of the question regarding the competitive dynamics that we are witnessing at the moment. Typically speaking, every first half of the year, I believe that there has been a relatively high level of competition in order to secure a certain level of subscriber base by each telcos in order to ensure annualized revenue target improvement. And also seeing how the Galaxy S4 is about to be launched, I believe that there might be some guerrilla type of marketing competition that is implemented by the telcos in order to eliminate their existing inventory of Galaxy SIII models as well. So there might be a slight possibilities of temporary overheating competition in the market. However, nonetheless, I believe that we are in an environment where we are not able to provide as high subsidies as in the past. And also seeing how the premium new handset lineup is actually proceeding right now, I don't think that we are at a point where we should be too concerned about too overheated market competition going forward. [Korean] Going forward, SK Telecom will work very hard to erode and actually subdue any unnecessary exhaustive competition that is entered around the subsidy payment and thereby focusing more on the more stellar call quality and service quality enhancement. And we will also work on further innovating our price plans and launching diverse types of new products so that we could focus more on the fundamental competitive elements and work towards retention of our existing customers. That will be the basic direction of our policies going forward in managing the market in the future. [Korean] In addition, I believe that as the share of the LTE subscribers out of the total subscriber number is actually exceeding 38% to 40% level. In the market, as a whole, I believe that the, I guess, incentives for overheated competition in this category is further coming down. [Korean] And also seeing how the government is very committed to help, stabilizing the market in terms of regulating the subsidies going forward. SKT as the dominant player in this particular category, we are highly committed to supporting the stabilization of the market as well. [Korean] Therefore, going beyond the second quarter, I believe that it would be quite achievable to work towards the market stabilization. [Korean] Your second question had to do with the spectrum reallocation by the government and you asked about the approximate timing of the bidding process as well as the bidding methodology that we anticipate. I believe that the government is planning to finalize on their policies in this regard in the month of June and also go through the bidding price process around the August time period. [Korean] And as for the bidding or auctioning methodology itself, it is my understanding that the final decision has not been made to date. [Korean] And I believe that spectrum allocation or frequency allocation will have imminent, a very big impact on the telco business in general. So as the government has promised, it is our expectation and hope that the government will be giving a fair decision in this regard so that all telcos can benefit from their decision.

[Operator:]

[Korean] The following questions will be presented by Mr. Yang Jong in from Hanggul Investment Securities. And the next question will be presented by Mr. Lee Dongseop from SK Securities.

[Yang Jong In:]

[Korean] I have the following 2 parts of the questions. First of all, I believe that your company is announcing the launching of the on-net and off-net unlimited calling price plans, and I was wondering what kind of profit and bottom line impact this will have on your company. And secondly, I believe that you have announced earlier that LTE-Advanced technology will be commercialized starting from September, so what will be the total CapEx size that is involved with this rollout? And also, how will that impact your annual guidance on the CapEx amount? And also regarding the multi-carrier and carrier aggregation technologies, what would be the coverage going forward?

[Soo Cheol Hwang:]

[Korean] Let me first address your question regarding the recently announced on-net/off-net unlimited calling price plans and how that will impact our profitability going forward. SK Telecom, as you are well aware, is working very hard to shift away from the exhaustive marketing competition that is focused on the unproductive expenditures on the subsidy side towards the competition centering more on the fundamental service competitiveness. [Korean] And regarding the impact of the recently announced on-net/off-net unlimited calling price plan that was announced, I believe that there have been a lot of discussions by outside observers as to how it could possibly negatively impact the company. But contrary to such belief, if you include all the extra benefit that the subscribers will be able to enjoy, and if you consider the ensuing positive benefits for the company, on a net-net basis, ultimately, we do not believe that we will experience true significant impact on the revenue for SK Telecom. [Korean] Of course, regarding the voice overage-related revenue, we do anticipate some reduction coming from the voice service category that we have enjoyed in the past. However, seeing how such voice overage revenue has been already on a downward trend, I believe that the net impact on our bottom line will be quite minimal. [Korean] To answer your second part of the question regarding our CapEx impact, as you are well aware, in order to facilitate the growing number of LTE subscribers and the growing traffic that we anticipate, we have already given you the CapEx guidance for the entire year in the amount of KRW 2.1 trillion, including the LTE investment. [Korean] And regarding the multi-carrier devices that have been already implemented through the software upgrade process, I believe that by the second half of the year, these devices will be able to provide the LTE-Advanced rollout in a commercial fashion already. Therefore, that extra investment that is necessary to transition or to migrate to LTE-Advanced will be quite limited as well. [Korean] And for your information, the service, multi-carrier service that was opened and launched in July of 2012, has successfully rolled out by the end of 2012 to not only cover the Seoul and metropolitan area but through all the major metropolitan cities around the country. So such expanded investment has been already implemented. So in 2013, to keep abreast with the growing number of subscribers and traffic increase, we plan to further expand the coverage in -- mainly focusing on the high-traffic concentrated areas. [Korean] So compared to those plans that are anticipated by the competitors, we do believe that the multi-carrier/carrier aggregation coverage will be much wider in comparison.

[Operator:]

[Korean] The next question will be presented by Mr. Lee Dongseop from SK Securities and the following question will be presented by Mr. Kim Hoe Jae from Daishin Securities.

[Dongseop Lee:]

[Korean] They all have to do with your subsidiaries. First of all, as for SK Planet, it's been about 2 years since you spun off the company. So I was wondering whether you are seeing some crystallizing performance output from the short-term to long-term perspective. And if you are showing any major gap versus your original plan, what are such differences in actual performance? And also, I believe that it would be appreciated if you could give us more detailed outlook about these businesses, although you mentioned it briefly in your opening remarks how you believe that this subsidiary will proceed in the future per business. And the second part of my first question has to do with your SK Communications as well as low end [ph]. I believe that you still have some equity-related issues to resolve. So how do you plan to address these issues going forward? And my second question has to do with Hynix. I believe that internally, you must be going through some post-investment evaluation of your performance to date. So if you could elaborate on your financial/strategic performance that you believe that you have achieved through the acquisition of Hynix, that would be appreciated as well.

[Soo Cheol Hwang:]

[Korean] Your first part of the question had to do with the actual performance and outlook of SK Planet. As you're well aware, we have spun off this entity in Q4 of 2011. And until today, SK Planet has been focusing very much on growing its power and capabilities and presence in its respective business areas. [Korean] And to be more specific, in terms of the 11th Street, I believe that they followed their very successful strategy of focusing on the very simplified settlement system, called paypin, and they've been focusing on the specialized marketing activities. So by doing so, they successfully countered the aggressive moves by the competitors. And also if you look at the Q1 2013 GMS, or growth merchandise sales, it stood at KRW 1.1 trillion. And for your information last year's GMS number stood at KRW 4.6 trillion. [Korean] And if I may share with you our perspectives on the mid- to long-term perspective, we plan to focus on

[Operator:]

[Korean] The next questions will be presented by Mr. Kim Hoe Jae from Daishin Securities. And the following questions will be presented by Mr. Stanley Yang from Nomura Securities.

[Hoe Jae Kim:]

[Korean] Yes, I have the following questions. I believe that you still have about 4.8 million 2G subscribers in your subscriber base. So how do you plan to actually manage the remaining 2G subscribers in the future? And also, by launching your new marketing app called Noot, I believe that you are trying to focus on the marketing efforts, focusing more on the data consumption increase. So could you be more specific as to how you plan to further accelerate and expand the data consumption by your subscribers in the future? And also, relatedly, in this whole activities and initiative, what would be the role taken up by SK Planet?

[Soo Cheol Hwang:]

[Korean] To answer your first part of the question, you're right. As of the end of the second quarter, or as of now, perhaps, the number of 2G subscribers currently comes in at about 4.8 million. And you were asking about how we plan to manage the 2G network going forward. Our position is that rather than artificially and involuntarily suspending their services on the part of their subscribers, we will see the natural declining number of the 2G subscribers and we will react to it in a more natural fashion in this regard. [Korean] To answer the second part of your for question, we have with us the head of the Marketing Strategy Division who will help answer your question.

[Unknown Executive:]

[Korean] Yes, my name is Yoon Won-Young [ph], the head of the Marketing Strategy Division at SK Telecom. [Korean] Recently, as you are well aware, we have launched the data creation application/initiative called Noot. [Korean] As you are well aware, we have, to date, launched other services called the data sharing and data gift program, et cetera. So this new launching of the app Noot has been initiated in order to further accelerate the usage of data by our subscribers. [Korean] We expect that these initiatives, including data sharing, data gift program and the data creation program called Noot, I believe that we will be innovatively help expand the data usage by existing customer group. [Korean] And also, in order to facilitate the customer's lifestyle value change with regards to data, we have launched various other initiatives in the data category. [Korean] If I may cite just a couple of examples, they include T Premium services, as well as T Baseball service. [Korean] And throughout the rest of this year, we plan to further launch new and additional products and initiatives to further meet the needs of our customers everyday lifestyle needs. [Korean] And seeing how we are in the process of shifting the price plans scheme into a more data centric one, our plans to keep abreast with this change are as follows

[Operator:]

[Korean] The next questions will be presented by Mr. Stanley Yang from Nomura Securities. And the following questions will be presented by Mr. Choi Namkon from Tong Yang Securities.

[Stanley Yang:]

[Korean] I have the following 2 questions. First has to do with the ARPU. I believe that in the beginning of the year, you have given us the guidance of ARPU growth for the entire 2013 to be at about 8% range. But if you look at the first quarter numbers only, it is less than anticipated and it's currently coming in at about 3.4%. So going forward, do you believe that the ARPU growth rate will further accelerate and -- so that you could fully meet the ARPU growth guidance of 8% after all? And my second question has to do with your market share policies of maintaining above 50% level. Do you plan to continuously persist with this policy in the future? And of course, we believe that your policy will stand as is. So if by any chance your market share is further threatened below 50%, how would SK Telecom counteract to address this issue? Would it be mainly through the tariff-cut-related initiatives or through other types of marketing subsidiary -- subsidy increase? So my question is, how specifically do you plan to defend your market share?

[Soo Cheol Hwang:]

[Korean] Let me first answer your question regarding ARPU. Actually, if you look at the ARPU number for the first quarter, it actually stayed pretty much unchanged quarter-on-quarter. And there are reasons that you are already aware of, I believe. For instance, there were some seasonal factors such as less number of working days, which led to pretty much on par Q-o-Q movement in terms of the ARPU. [Korean] But if I may share with you, the end of March ARPU figure, it has actually gone up by 2% compared to the previous quarters' average ARPU number. Therefore, seeing how we are already seeing the uptick movement, meeting that 8% guidance that we have given you for the entire year will not be an impossible target to meet. [Korean] We believe that the slope of ARPU increased growth rate in the beginning of the year has not been as steep as one would anticipate. However, we do anticipate very steady upward trend going forward in the ARPU numbers. [Korean] Let me now move on to your second question as to how we plan to defend and maintain the market share of above 50%. I believe that if -- I guess, protecting our current market share will be quite meaningful in that the market share becomes the source and the foundation for future profit for the company. [Korean] Our plan is to, basically, to leverage our excellent service quality as well as differentiated network quality that we have as competitive edge in order to further retain our retention of our existing subscribers. That is our basic policy. [Korean] And for your information, it is not our ultimate goal to actually exceed that market share number of 50%. That is not the end goal, but rather we believe that if we continue to maintain our differentiated competitive edge in our network and service capabilities, as a natural outcome, the market share will follow.

[Operator:]

[Korean] The next questions will be presented by Mr. Choi Namkon from Tong Yang Securities. And the following questions will be presented by Mr. Sam Min from Morgan Stanley.

[Namkon Choi:]

[Korean] Yes, I have just one question regarding your dividend policies. I believe that for this year, you are anticipating a rapid growth of your bottom line and I believe that the company management is quite confident about such earnings improvement. As you are well aware, you have maintained a fixed dividend per share at the amount of KRW 9,400 since year 2007. I was wondering whether you have any plans that you are either considering or planning as to a possible conversion to the payout ratio scheme or a payout of a special dividend?

[Soo Cheol Hwang:]

[Korean] I believe that SKT to date has been quite consistent in maintaining the balance between stable shareholder return and the growth of the company. Going forward, I believe that, that basic sense will not be changing. [Korean] I believe that we have already shared with you our policies or plans for dividend policy for year 2013 already. But looking at the long-term perspective, I cannot tell you that we have come up with the final and concluded direction as to how we plan to proceed with the shareholder return policies going forward. But I could reassure you that under the aforementioned policies that I have described, I believe that our shareholder return policy will be maintaining the same philosophy in the future as well.

[Operator:]

[Korean] The next questions will be presented by Mr. Sam Min from Morgan Stanley. And the following questions will be presented by Mr. Dan Koon [ph] from Deutsche Securities Korea.

[Sam Min:]

CFO Hwang, I just wanted to ask you in regards to your performance in the first quarter and the market expectations in terms of fundamental improvement for this year given how well your stock prices performed of late. If you could perhaps reiterate how you feel about some of the guidance you've provided. And perhaps if you could shed some financial guidance now that you feel marketing expense is likely to ease. Perhaps if you can provide any type of profit guidance either for the second quarter or for the entire year, it will be very helpful. My second question is on the dividend questions -- question previously. And with your debt-to-equity ratio now down from last year, we're looking at CapEx, capital expenditures to fall, marketing expense to fall as well and ARPU to rise. And so, what do you plan on doing with the cash this year? [Korean]

[Soo Cheol Hwang:]

[Korean] Let me first address your question regarding our performance of the first quarter and how we foresee the outlook going forward. During the first quarter, as you are well aware, compared to our original plan, we have experienced quite a bit of an overheated market situation, so our performance has not been as robust. However, as we go into the period beyond the second quarter, as you have mentioned it yourself, I believe that the market outlook or the market consensus seems to be more favorable. [Korean] As for the 2013 operating income related information as the market is estimating, I believe that because of the cost reduction factor especially surrounding the potential drop in the marketing expenses on a year-on-year basis, I believe that the operating income will be improving. [Korean] However, considering the uncertainties in the management environment that we are currently facing, it would be quite challenging for us to share with you more specific financial guidance for the rest of the year in terms of the earnings. [Korean] To reiterate, for the entire 2013, we believe that on a year-on-year basis, we will see a meaningful improvement. And that's our expectation, and also, the company is working towards that goal. [Korean] We do hope and expect that possible free cash flow increase will be likely, thanks to the CapEx decrease as well as the marketing cost savings. [Korean] As to such extra cash that we will be generating from all those positive factors, the company will be looking at the way to utilize this fund in a bit more comprehensive manner, comprising not only the improvement of the financial structure of the company, but also stable shareholder return as well.

[Operator:]

[Korean] The next questions will be presented by Mr. Dan Kong from Deutsche Securities Korea. And the following questions will be presented by Mr. Joon Lee from Merrill Lynch.

[Dan Kong:]

[Korean] Yes, I have the following 2 questions. It's been about a month since you have launched the unlimited calling price plans that you have recently introduced. So I was wondering whether you could give us the breakdown of the number of subscribers per different price plan categories. If that's not available right now, can you at least provide the average billing ARPU from this particular price plan, because you said that it is a little higher than the existing ARPU? And relatedly, are your up-selling and down-selling activities performing as was expected? And also, my second question has to do with your CapEx plan. Your CapEx number, which was guided, was KRW 2.1 trillion. I just wanted to double check, does that include the frequency allocation related bidding price as well?

[Soo Cheol Hwang:]

[Korean] Let me first answer your question regarding the usage pattern of the recent launch -- recently launched unlimited calling price plan, namely T&T Sharing price plan. It's been a month you said, as you have mentioned. And as of the end of April figure, the number of subscribers opting for this price plan stood at about 1.2 million subscribers. [Korean] So if I may share with you the pattern that we have so far witnessed, among those subscribers opting for the T&T Sharing price plan, majority of the plan subscribers are not only utilizing the on-net or off-net unlimited calling options, but at the same time, they are opting to maintain their existing level of data usage capacity. [Korean] While there are some subscribers that are opting for the downgrade of the price plans from their existing ones, the majority are actually either maintaining the current level of the price plans that they have used to date or some are actually up-selling. So in other words, they're upgrading in terms of the price plan. [Korean] For your information, the majority of the subscribers opting for this new price plan are deciding on the usage of the KRW 65,000 price plan and above. [Korean] I hope -- I ask for your understanding since I do not have the detailed breakdown numbers with me right now as for the specific number of subscribers per different categories of the price plan. So I apologize for that. [Korean] To answer your second part of the question, you asked whether our KRW 2.1 trillion CapEx guidance number includes the possible payout for the frequency allocation related auctioning process. You could understand that these 2 items are quite separate. CapEx versus the frequency bidding price will be separately handled. [Korean] For your information, if I may refer back to the historical experience, whenever new frequencies are allocated to a telco, in the first year, we are usually asked to contribute about 1/4 of that amount and the rest of the amount is to be paid out in a smooth-out fashion throughout the spectrum usage period.

[Operator:]

[Korean] The last questions will be presented by Mr. Joon Lee from Merrill Lynch.

[Joon-Ho Lee:]

I just have one simple question. The SK Group announced a few days ago that they will convert 5,800 temporary contracts to permanent contracts. What financial impact do you think this move will have on SKT going forward? [Korean]

[Soo Cheol Hwang:]

[Korean] At the group level, the announcement specified that a certain number of non-regular workers will be converted into regular worker status. But if we may share with you our financial perspective on this conversion only, I think that the financial impact will be quite minimal. [Korean] But rather, by converting such non-regular workers to regular workers, I believe that we could anticipate higher productivity coming from the stability of their job security. So I believe that if you consider all those positive aspects as well, the financial impacts will not be that big.

[Young-Gyu Park:]

[Korean] If there are no further questions, we will now close the conference call by inviting our CFO for his closing remarks.

[Soo Cheol Hwang:]

[Korean] Thank you for taking part in today's conference call until the very end. We will make sure that all your questions and interest are reflected in our efforts to further improve our management. [Korean] As mentioned before, SK Telecom will continue to reinforce its competitiveness by rising to new challenges while doing its utmost to ensure consistent growth and shareholder value increase. [Korean] Thank you very much.

[Young-Gyu Park:]

[Korean] This concludes the earnings call for Q1 2013. Thank you very much for taking part.