KT Corporation (KT) Q4 2015 Earnings Report, Transcript and Summary

[Interpreted]. Good morning, and good evening. Thank you, all, for joining this conference call. And now we will begin the conference of the 2015 Fourth Quarter Preliminary Earnings Results by KT. We would like to have welcoming remarks from Mr. Youngwoo Kim, KT, IRO and then Mr. Gwang-Seok Shin, CFO who will present earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we would like to turn the conference over to Mr. Youngwoo Kim, KT IRO.

[Interpreted]. Good afternoon. I am Youngwoo Kim, KT’s, IRO. We will now begin 2015 full year earnings presentation. Our call is being webcasted via the company’s website so please refer to the presentation slide as we present the business results. And please note that since the first quarter of 2011, KT has been presenting consolidated numbers under the IFRS accounting standards. Now, I will invite our CFO, Gwang-Seok Shin for his opening remarks and presentation on 2015 earnings results as well as business outlook for 2016.

[Interpreted]. Good afternoon. I am Gwang-Seok Shin, KT’s CFO. 2015 was a meaningful year as it made 30th anniversary in Korea’s telecommunication history. And also because KT was able to bring solid turnaround and the structural cost improvement efforts positively changed customers’ perception of our product and services as we achieved quite a significant profitability improvement. In the wireless business by introducing leading-edge services such as data select rate plan introduced for the first time by KT and the media-pack which is a distillation of mobile content capabilities, we continue to enjoy subscriber net additions since the first quarter. For fixed line, GiGA internet subscriber increased to over 1.1 million and IPTV subscribers above 6.5 million helping with the unrivaled number one position in internet and IPTV. This year, KT plans to bring along a complete differentiation in its product offerings against competitors, transforming customer perception so as to use such edge as our growth engine for our core businesses. By the end of the year, we plan to expand GiGA coverage to 100% across apartments [ph] nationwide. A further investment in GiGA infrastructure which is KT’s core edge, we will lead offering of new services such as GiGA internet, GiGA Wi-Fi and GiGA LTE. With such a robust competitiveness across the fixed and wireless, we expect top-line growth from other fixed line businesses such as broadband internet and VDF to be more than offset in the decline in PSTN revenues starting this year. As such, we expect a meaningful change in KT’s revenue structure. In terms of new growth engines we will focus on generating results based on two main pillars of ICTV future convergence business and platform business. And in terms of five key areas of converged GiGA service, who are namely, smart energy, integrated security, next generation media, healthcare, intelligent transportation management, whose selecting and focusing will secure a business model that can be quickly deployed. And by converging, this business model with GiGA infrastructure, we will strive to transform into a platform based business around O2O, Syntex and IoT. In IoT based on intelligent infrastructure of big data and cloud, we will continue to deploy industrial IoT business model that would explore opportunities in conversion services with other industries. And accordingly, we plan to solidify home IoT service as well. KT will endeavor to achieve 2016 consolidated revenue of above KRW22 trillion underpinned by stronger telecom competitiveness and structural cost reduction and bring out continued improvement of profitability. In 2016, driven by KT’s number one technology and services, we will further strength growth and profitability potential of the telecom business. And through robust performance from future growth businesses, KT will strive to become a global number one. With that, let me now move on to 2015 results and 2016 business outlook. 2015 operating revenue declined 0.1% year-on-year on lower fixed line and merchandize revenue. Whilst service revenue increased 2.4% year-on-year to KRW19.5138 trillion driven by across the board growth except for fixed line business. Operating profit recorded a significant turnaround year-over-year at KRW1.2929 trillion enabled by a stronger fundamental competitiveness of our core business leading to subscriber and topline growth on top of structural cost innovation efforts. Net income came in at KRW631.3 billion and EBITDA was KRW4.3615 trillion. Next is statement on the financial position. 2015 debt to equity ratio is 141.2% down 45.3 percentage points, year-over-year. Net debt ratio is 49.9% down 42.7 percentage points, year-over-year. Next on CapEx. Total CapEx for 2015 is KRW2.397 trillion and this year we plan to be efficient within KRW2.5 trillion of CapEx. Next is on each line of business. Wireless revenue recorded KRW7.3707 trillion up 0.7% year-on-year. Wireless service revenue posted a growth of 3.4% year-on-year on higher LTE penetration, increase in high-quality subscribers led by greater use of data and sale of value added data products such as data top-up. LTE subscribers now account for 71% of the total base with Q4 ARPU at KRW36,491, which is up 0.8% Q-o-Q. In 2015, as we saw wireless competitive landscape change into one that is data centric during with KT’s fixed and wireless GiGA network and product edge were acknowledged by the customer leading to 3.4% annual growth in wireless service revenue. This year, based on a broader and faster GiGA network, we plan to provide fully differentiated data usage environment leading the market with premier customer service so as to bring wireless ARPU and service revenue growth of more than 2%. Next on fixed line business. Fixed line revenue on PSTN revenue decline was down 6.9% year-on-year to KRW5.1587 trillion. But equipped with GiGA internet that has broader coverage and maximum 10 times faster speed, in just one year and three months since it’s commercialization acquired 1.1 million subscribers for the first time in Korea achieving our 2015 strategic target. As a result, broadband revenue rebounded over the third quarter and the fourth quarter and we expect fixed line revenue to show improvements underpinned by GiGA products going forward. This year, broadband business is expected to continue with subscriber net addition trend reaching more than 2 million GiGA internet subscribers by the end of the year, sustaining the topline growth. Next on media and content business. Media and content revenue increased 10.2% year-on-year to KRW1.6623 trillion. Despite tougher market environment, IPTV endeavored to keep its leadership through contents that cater to customer preference and through preemptive expansion of new HD channels. Since 2011, our IPTV business has posted high average topline growth of 21.7% for five years until last year. Last year alone, 690,000 subscribers were acquired with total subscriber base reaching over 6.5 million. For this year, for IPTV, our target for subscriber net additions is 500,000 and standalone IPTV revenue growth of over 20%. Next is on financial and other revenues. Financial revenue increased 5.9% year-on-year to KRW3.411 trillion on good revenues from DC cards led by higher card usage. Other service revenue increased by 29.5% year-on-year to KRW1.911 trillion on high IT and solution revenue led by sound global ICT business. Next is on operating expense. 2015 operating expense came in at KRW20.9883 trillion which is down 7.6% year-on-year. Note, labor cost declined 15.7% Y-o-Y to KRW3.3035 trillion. KT will strive to find ways to structurally enhance cost efficiency and bring about improvements on profitability. Now that brings me to the end of the presentation on 2015 results and business outlook for 2016. For more details, please refer to the materials that we’ve provided. We will now take your questions.

[Interpreted] [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 and Securities. Mr. Hue Jae Kim, please go ahead with your question.

[Interpreted]. My first question relates to your media business. You’ve shared with us your IPTV revenue target. But you have not talked about the bottom-line aspect. Can you share with us what your profitability target is for your IPTV business? And also in terms of your media business, what synergies can we expect between KT and Skylife going forward? Second question has to do with your non-operating items. It means that your non-O loss was quite significant. I’m wondering whether this, is mainly due to some of the expenses related to restructuring or are these non-operating losses one-off factors.

[Interpreted]. Your question relating to the IPTV profitability and to the corporation with Skylife, first on IPTV, we continue to see increases in the high quality subscriber base and offer platform revenue as well as improvement in terms of cost efficiencies. So we see these elements making a contribution to improvement on the profitability aspect. And hence, our target is to achieve breakeven point towards end of the year. There is basically no change in our position that we will continue to retain as the same as our market leadership in the next generation media industry, compared to HD level, UHD as we enjoy the traffic that is about two times or three times higher. We believe that in the age of UHD, KT since it has its satellite platform can really leverage and utilize the advantage that it has. In terms of the subscriber number, in satellite, we have 2 million subscribers and we have 6.5 million IPTV subscribers. We have the basis therefore to strike a good balance between satellite and IPTV as well as cooperate and collaborate in order to provide the best UHD services to the customers. Related to your second question on non-operating loss, we’d like to explain as to the reason behind that and future outlook. Over the past three years, as we implemented corporate restructuring and improvement and revamping of our corporate portfolios, and as we sold off unsound assets, inevitably we had incurred significant losses on a one-off basis. Same goes for the fourth quarter of 2015. In order to eliminate potential risks that may negatively impact our profitability and cash flow going forward, we inevitably had to bear the one-off expenses. Now, 2015 was a year where we were able to complete array of corporate restructuring efforts. Hence, we would continue going forward to focus our efforts on accelerating the growth potential of our core businesses and also bringing about tangible performance and outcome from our new growth engine businesses. As a result, we would be able to see reduction in one-off expenses or non-recurring expenses. And going forward, in order to further improve our profitability, and also to make sure that we have stability in terms of the operating as well as non-operating profit scheme, we will exert our efforts to bring about that feasibility. And in 2016, we would try our best to bring about and we expect that we would see some good visible results.

[Interpreted]. The next question will be presented by Jong In Yang from Korea Investment and Securities. And the following question will be presented by Hong-seek Kim from Hana Financial Investment. Mr. Jong In Yang, please go ahead with your question.

[Interpreted]. I would like to post two questions, the first, I would like to understand what the trend is in terms of that 20% tariff discount scheme that people are taking out? And what impact is the tariff discount plan having on the ARPU as well as marketing cost? I would like to know what the actual figure was or the extent of the impact was in Q4 and what is your projection for 2016? Second question is for your 2016 bottom-line, which will have a bigger impact, would the growth in topline have a bigger impact or reduction in cost have a bigger impact on increasing your profitability. And for instance, if you were to be able to save some operating expense items, specifically where would you be able to enjoy that reduction in cost?

[Interpreted]. Relating to your question that the 2015 tariff discount scheme if you look at Q4, the number of subscribers who took out the scheme were 540,000. And on an annual basis, the percentage is 15.1%. That’s for 2015 annual. And in terms of the future projection, relating to subscribers taking out this 20% discount rate plan, once that seaming was increased, we see increase in people’s adoption of this rate plan. But you also have to keep in mind that in the fourth quarter there was a new iPhone model that was launched, so we believe that there could have been some temporary impact. We think the 20% rate plan take-up rate is going to vary depending on the level of subsidy provided and depending on the introduction schedule of key handsets into the market. But all-in-all, we believe that on average, the take-up rate will be somewhere around mid-20%. In terms of the impact on ARPU, it is true that the tariff discount scheme is going to have some negative impact on this year. However, you also have to keep in mind that this rate plan helps us to attract high quality subscribers and also the churn rate is going to decline, at least during the subscription period and there is lower level of initial marketing cost. Especially for people who select the tariff discount scheme as opposed to the subsidy, it’s going to feel less of a burden in terms of paying for the monthly tariff. So therefore there is higher percentage of high-quality consumers or subscribers. Now, but from a comprehensive perspective as to what on a per subscriber level, what impacts it actually deals on a P&L, it varies and it differs depending on the timing of the churn itself, so it’s very difficult for us to come up with an exact prediction. Responding to your second question, in 2015, we were able to achieve a turnaround in our core business and also reduce marketing expenditures due to more stabilized market and were able to conduct headcount restructuring. All of these efforts helped us achieve improvement in profitability which is all underpinned by such restructuring efforts. Going forward in 2016 as well, we will focus on growing our core businesses and also trying to get visible outcome from new businesses and bring about efficiencies in our structural cost structure so that we can continuously enjoy improvement in bottom-line. And [indiscernible] we plan to increase our service revenue underpinned by our core business group as well as bringing about great performances on our new business initiatives. In terms of the wireless, in terms of the wireless business, based on data we will achieve qualitative growth and also will further reinforce cost efficiencies. And based on our GiGA leadership, we will continue to grow our broadband business. And also in terms of the IPTV, we will continue to increase IPTV platform revenue and based on subscriber quality be very aggressive in improving the bottom-line so that within the year we can achieve our breakeven point. In terms of PST earned, the revenue decline, we want to reduce the extent of the decline to around mid-KRW200 billion. And we believe that the outcome from our new initiative such as future conversion business platform and global businesses, these growth engine businesses will start to show some visible performances. And underpinned by the outcome and efforts in restructuring, we believe that our key group of company subsidiaries will also contribute to a very stable topline and bottom-line growth. On the expense side, we continue to expand on the efficiency as well as stability. The marketing expense, depreciation, these key expense items are being - expense items are declining and being more stable as it declines. We are improving on the process itself, efficiency is improving and also business flow is improving. Through such efforts we will enhance our structural cost efficiency, so that we would be able to make up the fall in PSTN topline.

[Interpreted]. The next question will be presented by Hong-seek Kim from Hana Financial Investment. And the following question will be presented by Jee-hyun Moon from KDB Daewoo Securities. Mr. Hong-seek Kim, please go ahead with your question.

[Interpreted]. I would like to ask you two questions. Last year you made the disclosure that you would be paying out the dividend at KRW500 per share. Excluding the one-off items, what is on the HQ level, on another company level, what is your payout ratio? And what is your policy for future payout ratios? Second question is, CEO, Hung recently has said that he is committed to increasing the corporate value. I would like to understand what method would you be able to use to try to grow your equity prices?

[Interpreted]. Now on dividend, we’ve yes, made the decision that it would be KRW500 per share, more exact calculation might be needed. But on rough calculation aspect, and excluding the one-offs, the payout ratio would be around 30%. You also asked about 2016 dividend policy, we do not have any explicit guidelines relating to this 2016 dividend policy. But we will continue as we make the calculations to exclude the one-off items when we calculate the dividend on a standalone company basis. 2016, just as 2015, once we get some visibility on our annual business performance and once the elimination of the uncertainties in the business operations and regulatory environment, we would be able to communicate with you as to what that dividend might look like. And we will continue to prioritize on the bottom-line and improvement of cash flow based on which we would conduct our business activities. And I believe that in that process, we would naturally be able to expand shareholder return. Responding to your second question, over the past two years, as we were able to attain turnaround in our core businesses and bring about improved structure - organizational structure, we were able to enjoy better profitability, better financial structure as well as cash flow. Going forward also if we - and we also, have set for ourselves a very clear vision for our future growth and based on such improvements in profitability, we were able to restart dividend payout in 2015. And going forward, we would also continue to be endeavored to expand shareholder return underpinned by improved profitability and improved cash flow. KT from a mid-to-long-term perspective, basically if you consider our capabilities in profit generation and in growth potential, I believe that KT’s equity price is undervalued. But going forward, we believe that that gap that exists between the value of the company and the share price will continue to reduce. In 2015, we were able to achieve improvements in many different aspects and we will continue to maintain that improvement trend going forward. And we believe what is most important is also to build firm trust and gain trust from the market. KT’s executives are committed and have placed priority on enhancing shareholder value. We believe that is most important and we will do our utmost to attain that.

[Interpreted]. The next question will be presented by Jee-hyun Moon from KDB Daewoo Securities. And the following question will be presented by Neil Anderson from HSBC. Ms. Jee-hyun Moon, please go ahead with your question.

[Interpreted]. I have a question relating to your mobile ARPU. LTE penetration has reached a saturation point. And the government authorities are exerting some pressure relating to the tariff discount plans. And in Q4 it seems that ARPU has slowed. So for 2016, what do you think is the key driver behind the ARPU growth, because there are some concerns that ARPU could start to record negative growth? Second, the cost that goes into the merchandize, the cost of merchandize is, the purchase seems to be higher than the merchandize revenue. It seems to be a trend since the introduction of the Handset Subsidy Act. Is there any specific reason behind this trend and do we - should we expect the same for this year as well?

[Interpreted]. Now on ARPU, due to the change in consumers’ purchase pattern for handsets, the ARPU growth has slowed. However with more people moving over to LTE services and with the greater percentage of high-quality customers, if you look across the quarters, there was ARPU growth. And our target annual ARPU growth target is at 2%. The percentage of subscribers who take out the tariff discount plan are increasing, the percentage is increasing. You also have to be mindful of the fact that the actual tariff burden that the people feel is therefore lessened and that actually leads to higher data usage by the subscribers. So, the negative impact that one might think is somehow limited. And also LTE penetration gradually and continuously rises, it is rising. And considering the fact their subscribers require multimedia services which lead to more data usage, the need also continuously rises. So in that aspect, we still believe that there is room for ARPU growth. Especially if you look at GiGA LTE which is a differentiated service, that really befits the generation of the data users. We can expand on the high quality subscribers. And by introducing products like My-Time plan which is a value-added product for new unlimited data and also VIP pack which is a multimedia value-added product. Due to such products and services, we continuously provide new value offerings to our subscribers. And through that we are going to achieve our ARPU growth target. You asked about the gap, so the greater gap between the cost and the revenue related to the merchandize, merchandize revenue as opposed to the cost and expense. Since the implementation of the Handset Subsidy Act, there was an adjustment and change in the way we do the accounting for the subsidy. So in 2016, we believe that that gives the difference between the revenue and the cost will continue relating this merchandize.

[Interpreted]. The next question will be presented by Neil Anderson from HSBC. And the following question will be presented by Sam Min from Morgan Stanley. Mr. Neil Anderson, please go ahead with your question.

Thank you, good afternoon. I had a question about the MVNO market in Korea. And I understand with the growth in customer preference for tariff discounts that should help reduce the risk from MVNO. But I would be very grateful if management would outline how they think the MVNO market would develop and particularly what the advantages in a customer choosing an operator like KT over some of the attractive and cheaper tariffs offered by the MVNO? Thank you.

Relating to the MVNO market, recently we made addition trend in the MVNO segment has somewhat slowed. But in light of the fact that the government wants to really promote this segment, we believe that the growth trend of the MVNO market will continue. So, from a mid-to-long-term perspective, they can now grow to around 15%. Since the introduction of the Handset Subsidy Act, there was a more, stronger MNO retention and also there are inherent limitations in the low price or low-end market. So, because of that and also because of also the competition amongst the MVNO providers, in 2015 the growth for MVNO had quite slowed. Now KT’s position is that it wishes to and it is committed to maintaining a market leadership in the MVNO market. And also we will employ flexible counter measures responding to the changes in the market. As of end of 2015, the percentage of MVNO subscribers through that 15% and by the end of 2016, we are targeting around 17% above 16%. You also asked about the advantage of MNO as opposed to MVNO, based on more diverse product portfolio, MNOs can provide on-road products and provide various different subscriber services as well as competitiveness. And also provide variety of handset line-ups that customers can choose from.

[Interpreted]. The next question will be presented by Sam Min from Morgan Stanley. And the following question will be presented by Tony Yung from JPMorgan. Mr. Sam Min, please go ahead with your question.

Yes, hi. Before I ask my two questions, could you remind us how many MVNOs are there in Korea? And if any one of these MVNOs can gain scale in the future? My two questions, my first question is on regulations. So, NSIT released 2016 plans few days ago. One particular plan is suggesting to, lower contract termination fees as well as restructuring handset subsidies to allow lower cost of churn for users. Just wondering how you think this will impact the market or wireless market going forward? Related to that would be, what would happen to turnaround volume as well as SAC? Second is on fixed line erosion, could you explain what part of PSTN are eroding the fastest? You seem to have essentially met your guidance where you came in at KRW290 billion erosion and you were targeting about KRW300 billion erosion. So, how do you have this visibility, and you’re now targeting mid-KRW200 billion erosion for this year 2016. Could there be an upward surprise to that or downward surprise to that? Thank you.

[Interpreted]. In terms of the MVNO players in Korea, including the 21 players who cooperate with KT, there are 46 MVNOs in total in Korea. And as of end of the fourth quarter, they account for 9.7% of the market. And we believe that their position can grow to - account for around 15% of the market. Relating to your question on regulation, the big picture stance of the government still is intact. Basically government is seeking to facilitate service competitiveness so that at the end of the day that you just can enjoy less of a burden when it comes to telecommunications expenditure. And still we would see from the Handset Subsidy Act as well as the overall regulatory frameworks that the focus is on enhancing consumer benefit and reducing discrimination. And the 2016 plan that was announced by NSIT and KCC basically, the key gist of it is in terms of, is reducing the contract termination fee as well as providing more data to the vulnerable segment of the society. All of this is in line with that big picture. In KT, we’ll continue to reinforce its service and product competitiveness, and so it will contribute to naturally facilitating competition in the market so that the consumers can truly enjoy benefit. Having said that, with regards to the 2016 government plan, I think we would need to, more closely look at it. And we’ll get back to you if necessary. Relating to your question, 2016 fixed line erosion, it is yes, mid-KRW200 billion. So it’s going to be lower than the previous year, and after 2016, taking a conservative view, we think that the erosion will be around 11% to 12%. The absolute amount is basically declining, so the burden on the revenue and profit side is continuous declining. And also, 40% of the fixed line is basically for businesses. Considering that aspect we think that this erosion - the percentage of the erosion itself could soon enter into a more stable phase. Also in 2016, with our GiGA business and our future growth engine businesses, we can truly make up for that erosion. With continuous growth and the GiGA business and IPTV and improvement in our business efficiencies and innovation in our cost structure, we believe that it is possible to even offset the bottom-line burden.

[Interpreted]. The next question will be presented by Stanley Yang with JPMorgan. And the following question will be presented by Sharon Chen from MetLife. Mr. Stanley Yang, please go ahead with your question.

[Interpreted]. I would like to ask two questions. The first: you mentioned that you would be able to achieve breakeven point for your IPTV business. In this scenario, did you assume SAT is actually acquiring CJ Hellovision or did you not assume that? And with SKT CJ Hellovision acquisition, would this have any impact on your business? And second question is, this year, you were able to make a cover for make-up for the fixed line erosion part through media, do you see any erosion through media and broadband business? I asked that question because I would like to understand what from an overall perspective your operating profit forecast is going forward. Either on a standalone or consolidated basis, is it possible for you to be growing your profit, if so, to what extent?

[Interpreted]. Now the IPTV business basically we plan to attain the given point underpinned by subscriber growth, quality improvement and cost reduction. In terms of CJ Hellovision, KT’s view is that the fact that such nationwide broadcast player is acquiring a local player is unprecedented. And also the fact that a dominant player in the mobile telecommunications is entering into a broadcasting market, also that is an attempt, that is an interesting attempt and that is an attempt. And so we are very closely monitoring and observing and coming up with ways to deal with it and responding to it. However, we have not assumed this merger to take place based on which we came up with any counter measures. But we did not review any specific counter measures that assumes that the merger goes through. You asked about profit for 2016, compared to 2015, we are focused also on bringing about better bottom-line and are conducting our business activities under that goal. We believe that we can amply increase our profit. But having said that there could be unexpected internal and external variables, therefore we are prudent in communicating specific profit target. But through the years, we believe that and as seen by 2015, we believe that we have normalized our capability in profit generation. And so we would exert our utmost efforts to continue to this trend.

[Interpreted]. The next question will be presented by Sharon Chen from MetLife. And the following question will be presented by Sean Oh from Merrill Lynch. Ms. Sharon Chen, please go ahead with your question.

Hi, thanks for taking my questions. My first question is on the wireless market. As mentioned this year I think KT has been gaining subscribers at the expense of SKT. Can you just briefly comment where you think KT’s trends lie and what SKT has been doing in order to stabilize their market share? And my second question is on acquisitions. Given that your restructuring program is now almost behind you, is the company open to making acquisitions in certain growth areas. And if so what type of companies would you be, interested in acquiring? Thank you.

[Interpreted]. KT was able to continue with its subscriber net addition trend underpinned by our core competitive edge in terms of distribution and service competitiveness. Especially since the first quarter, we have expanded on our quarterly net addition side, and on an annual net addition basis, we achieved a turnaround. In a changing market environment, where a paradigm is changing and focusing on service competitiveness, we are leveraging our GiGA infrastructure based on which we are providing differentiated services to different customer segmentation. By providing such specialized services, we are leading competition in terms of service and we have strengthened our leadership in the mobile market. Going forward, KT, we continuously explore and discover new differentiated services which are data-centric. And we would compete not based on subsidy but based on different services so as to satisfy our customer needs. Relating to your second question, for our growth businesses of future conversions and platform business, we can consider possible M&As but we are not in a position to say anything specific more than that because we believe that in terms of M&A, our position is that we must be very prudent.

[Interpreted]. The next question will be presented by Sean Oh from Merrill Lynch. Mr. Sean Oh, please go ahead with your question.

[Interpreted]. My first question, it seems like these days low-end phones, mid-to-low-end phones are starting to take off. If so, it actually helps you reduce your marketing cost. Second, your total subscriber number has increased but if you specifically carve out the MNO subscribers, year-on-year, it is flat. Is your position or policy trying to retain and maintain your MNO subscribers and trying to grow your MVNO or do you also have plans to really want to - plans to increase and grow your MNO subscriber as well?

[Interpreted]. Firstly, implementation of the Handset Subsidy Act, there was reduction in the lowering of the handset at factory price. And also, we have seen the demand for mid-price handset and the demand for such line-ups has declined whereas demand for low-end phones, have increased. So, the market is in a state where we see a dichotomy between the premium phone and the low-end phones. Since 2014, KT is responding to such change in the demand patterns, vis-à-vis the handset, we have focused on which to lower-end models, 3G phones and also phone and handset secondly more popularized. And we have focused on sourcing these types of phones actively as well. But all-in-all, marketing cost, we believe is going to converge at a quite reasonable level. Responding to your second question, for the MNO subscribers, the My Kit has already hit a saturation point, so it is not easy to increase the number of MNO subscribers. So, rather than trying to expand the market share from a short-term perspective, our position is to maintain the current market share but half our customers and subscribers trade up so that they become higher-quality subscribers. MNT is important but handset replacement demand, handset upgrade demand this has become also very important. So, our position is to focus more on long-term customer retention. For the MVNO market, KT’s objective is to continue to enjoy its leadership. And we will be flexible in responding to market changes.

[Interpreted]. I have a follow-up question. I’m wondering that if you were to account for the revenue for the MVNOs at the revenue level, would there any - are there any company cost that we have to think about?

[Interpreted]. As for the MVNO, a safe way to say that there is no other cost other than the direct cost.

With no further questions, we will now close the Q&A session. Once again, thank you very much for joining us today. This brings us to the end of 2015 earnings conference call for KT. Thank you.