Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2019 First Quarter Earnings Results by KT. We would like to have welcoming racks from Mr. Seung-Hoon Chi, KT IRO; and then Mr. Kyung-Keun Yoon, CFO, will represent earnings research 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. Seung-Hoon Chi, KT IRO.

Good afternoon, I am Seung-Hoon Chi, KT's IRO. This earnings release call is currently being webcast via our website and you can follow the slides as you listen in on the call. Let us now begin KT's Q1 2019 earnings presentation. Please note that KT's earnings are presented based on consolidated financial statement as under the IFRS standards. We will begin with our CFO, Kyung-Keun Yoon, opening remarks followed by highlights on Q1 2019 results.

Good afternoon. I am KT's CFO, Kyung-Keun Yoon. Despite difficult market conditions in the first quarter driven by solid growth from core businesses of Wireless, Internet and Media businesses, KT was able to bring growth in revenue of 2.2% and operating profit of 1.3% year-over-year. For the wireless business in Q1, there was 169,000 MNO subscriber net additions with total reaching 21.330 million subscribers. Especially, there was an increase of 56,000 handset subscribers who are mostly prime customers taking out data on rate plans, driving 0.2% year-over-year growth in wireless service revenue. KT began world's first 5G services last April and with its innovative 5G rate planned and services. In just a month since the launch, it's leading at the front of the market with more than 100,000 subscribers. And super plan is a total unlimited data plan that removes any data-related burden for the customer and more than 85% of new subscribers are opting for this plan. Also underpinned by our confidence on our 5G quality, we were the first to open our 5G coverage map in the domestic market. By being transparent in terms of number of base stations and equipment manufacturers used, we were able to alleviate any answer to these people might have felt on coverage and we are doing our best to provide the best quality 5G services through service stabilization. In B2B segments like manufacturing, media, health care and the public sector, we're making multiple cases of collaboration in 5G. KT is committed to developing 5G into a foundation for sustainable and long-term growth through our best quality 5G network and service differentiation. In the Internet business, GiGA Internet subscriber surpassed 5 million mark expanding to 58% of KT's total Internet subscriber base. We will continue to broaden customer base, mostly around 10 GiGA…

For more details, please refer to the presentation materials that have been circulated. We will now entertain your questions.

[Operator Instructions]. The first question will be provided by Jong In Yang from Korea Investment Securities. And the next question will be provided by Hoi Jae Kim from Daishin Securities. Mr. Jong In Yang, please go ahead with your questions.

I would like to first congratulate you on a good services performance that you were able to achieve this quarter. I would like to pose two questions. First, has to do with your 5G-related ARPU. You mentioned that you were able to attract 100,000 subscribers for 5G services. I would like to understand when 5G will start to have meaningful impact on your ARPU number? Could you provide some color as to when your mobile-related ARPU is going to actually turn around and start to draw an upward trend? Second question relates to depreciation. If you consider for the changes in accounting standards with regards to lease expenses for Q1, it seems like the figure is actually going down. This year, you have - you've marked around KRW3.3 trillion of investment, CapEx investment. Would like to understand what your take is on this year's annual depreciation figure?

Let me first to respond to your question about 5G rates and the ARPU impact. Currently, if you look at the trend, more than 80% of the people are taking out rate plans above KRW80,000. So the initial ARPU that we are seeing is quite high but we will be able to understand the actual - the trend to stay as we see the increase in number of subscribers. Responding to your question about the wireless revenues. We have seen the share of people taking out the selective discount plan actually rise to a significant level and also with the number of 5G subscribers were really taking off and being activated, we believe - and we are taking a quite positive stance on the future prospect of revenue as well - revenue turnaround and ARPU turnaround, most likely to happen in the second half of the year. Responding to your question about depreciation. In the first quarter, due to the application of IFRS 16 standards on a consolidated basis, there was a year-over-year increase of depreciation cost of KRW75.6 billion. However, there was also a downward impact on lease-related expenses, hence, the impact on operating profit was quite minimal. Now if you were to carve out the impact of IFRS 16, in 2019, the depreciation figure, despite the fact that we have begun investment on 5G and there's new depreciations relating to the spectrums that we have. Because the LTE depreciation resulted in 2012 and 2013 has come to an end, we expect 2019 depreciation to rise only slightly on a year-over-year basis. We will take the next question.

And the following question will be presented by Hoi Jae Kim [ph] from Hana Financial Investment. Mr. Jae Kim, please go ahead with your question.

With the launch of the 5G services, you also launched the unlimited data plan and I think that this was based on the understanding. You have the infrastructure and capacity in place to fully cover for full explosive data traffic growth. So could provide some elaboration especially in terms of numbers as to the data capacity, data processing capacity that KT currently has? Second question, you disclosed that you would be making CapEx expenditure of KRW3.3 trillion. Based on that, I would like to understand what your pay out direction going forward is going to be? Would you be keeping to your upward trend going forward as well?

Responding to your question about our unlimited rate plan and the potential explosive traffic. KT has designed its rate plan in light of the network characteristics as well as the characteristics that the 5G services actually have. The 5G services basically, the way that a KT understands the 5G is that it is a network that specialized for high-capacity data transmission. Therefore, we would utilize our know-how - operational know-how in managing the existing traffic and we believe that we will be able to, without any interruption, be able to provide the services, mostly around the heavy users. I do understand that there are some concerns relating to a sudden explosive growth of data. But we are fully prepared to respond to any such movement and also any types of data traffic. And also we have the basis and the provisions that are in place to actually apply a normal rate to any commercial or abnormal usage patterns and we have the provisional basis to actually prohibit or stop such traffic. Responding to your question on dividend. In 2018, we have decided to pay out KRW1,100 per share in order to satisfy the expectations that the shareholders had. After 2018, we will also continue to determine the size of our dividend payout in light of the company's profitability as well as the capital utilization plan. In 2019, we do understand that due to the 5G investment from a short term perspective, there could be certain pressures put on profitability and cash flow. However, for the BOD as well as our managements team, it's a critical mission for us to maintain the track record when it comes to shareholder return and also enhancing our trust and shareholder value vis-à-vis the market. The actual amount of shareholder return, the size of the dividend, will eventually be decided by the BOD.

The next question will be presented by Hoi Jae Kim [ph] from Hana Financial Investment. And the following question will be presented by [indiscernible]. Mr. Jae Kim, please go ahead with your questions.

I would like to ask two questions relating to 5G. One on future forecast; and two, with respect to cost. In the initial phase of 5G launch, the net addition trend was quite favorable. Recently, however, saw some slowdown in the speed of net addition. You've initially projected about 10% penetration as of end of the year. Is this number still valid? I asked this question because your competitors have gone back and forth with respect to this target figure. What is KT's year-end target in terms of penetration? Second question, as players became quite aggressive in pushing for 5G lunch, there is also a heightened concern over marketing cost as well as CapEx expenditure. Your marketing expense over the years have been on a downward trend. This year, you will be reporting your numbers based on IFRS 15. What is your projection for the future marketing expense trend? Also there seems to be quite a bit of issue with regards to CapEx, especially given the fact that you have launch the unlimited rate plan. If you were to compare, as of today, the amount of CapEx that you're projecting for 5G versus the previous LTE CapEx that have been implemented, what would be the range of percent increase as against the LTE CapEx investment?

Our year-end penetration target for 5G, 5G penetration is 10% as against the small foreign subscribers. At this point, 5G market is defined as a premium market based on a strategic handset as well as characterized by high end rate plans. Depending on the coverage expansion and more addition of handsets to the 5G handset lineup, I believe that the speed of 5G subscriber acquisition will change. So on the marketing expense question. In 2019, with the increase in 5G subscribers and as we responded the competition in the fixed line market, we expect that in 2019, there will be somewhat of an increase in marketing expense. However, this number is going to be fluid depending on the market competitive backdrop. So please understand, it will be difficult for us to say the specific figure. KT is committed to moving away from unnecessary subsidy support and we will basically focus on broadening our subscriber base, leveraging our network capabilities and also do differentiated marketing activities. So on CapEx, as I have previously mentioned, in 2019, we're expecting CapEx spend about KRW3.3 trillion and this CapEx will comprise of: Our efforts to increase 5G-related quality and also increasing the ratings of our telecommunications sites and also CapEx will be used for network redundancies and disaster preparedness. In terms of 5G CapEx, please understand that we do not carve out that figure separately. When you think about 5G, the investment into 5G is actually inevitable for us to gain competitiveness. We do understand that it could be a constraint to our bottom line, but at this point, we believe it is more important for us to secure the basis for long-term growth. With respect to other existing businesses, we are going to review those businesses from the zero base and we have plan to actually reduce the size through efficient investment. Now if you look at 5G, in light of its spectrum-related characteristics and the configuration of the network, there is some possibility that the CapEx requirement could be higher compared to the previous generation of technology. But at this point, there are uncertainties. Hence, it would be quite difficult for us to make apples-to-apples comparison with LTE CapEx at this point in time. KT is going to make full use of its fixed line infrastructure and undertake its capital expenditure in a rational and reasonable manner.

The next question will be provided by [indiscernible] from NH Investment And securities. And the following question will be presented by Joonsop Kim from KB Securities. Mr. [Indiscernible], please go ahead with your questions.

I would like to ask some follow-up question on CapEx. If we look at the CapEx amount for Q1, I would think that there's going to be higher level of CapEx spend in Q2 and Q3. Can you update on your current level of coverage and what your number of base station target is as of the end of the year? Second, with regards to depreciation, should we expect quarterly upward trend for depreciation?

Responding to your question on KT's coverage. Basically, we launched the services based on 37,500 sites in areas such as toll, metropolitan, great city areas and highways and KTX as well as major universities. And by the second half of the year, we will be covering most of the areas under 85 cities and we are [indiscernible] our 5G-related efforts in order for us to continue maintain a network advantage or network superiority as compared to our peers. And also for transparency purposes, we have opened our 5G coverage map. We were the first to do so and you can access this coverage map for more information. So on depreciation, just to add on top of my previous answer. On a consolidated basis, it will be around 1 percentage increase year-over-year.

The next question will be provided by Joonsop Kim from KB Securities. And the following question will be presented by Seyon Park from Morgan Stanley. Mr. Joonsop Kim, please go ahead with your question.

My first question relates to your - what your view is with respect to the recent trend. If you look at [indiscernible], Netflix and also the integrated auction service that your peers are providing, it seems like the OTT services have risen as an alternative or a replacement of pay TV broadcasting. What is KT's take on this trend? My second question is what is your view with respect to your competitor moving to acquire a cable TV? I would think that the national assembly discussions on the broadcasting-related aspect will be the key with respect to the approval of such acquisition. Does KT have different scenarios in place so depending on the outcome of this acquisition process?

Now when it comes to the global OTT players like YouTube and Netflix and their market penetration, yes, we believe that this is quite threatening. However, we are going to very closely monitor the certain changes that we see in the media market. Now however, if you look at the preferences of the domestic consumers on the type of content that they prefer as well as the reasonable price that IPTV services are offering, we believe that OTT as well as pay TV broadcasting service will grow in tandem with one another. Now KT will continue to secure growth potential by offering differentiated services and also offering customized products. In terms of the reshuffling or the revamping of the pay TV market structure, including the potential for acquiring cable-TV player, KT is looking at various different strategies to further bolster its competitiveness from a long term perspective.

The next question will be presented by Seyon Park from Morgan Stanley.

I would like to ask additional questions on CapEx. The 2019 guidance that you shared with us, is this on a stand-alone basis or a consolidated basis? And moving onto 2020 guidance. You mentioned the need to make investments for redundancies of the existing network and also potential upgrades. Now is the figure a slight increase on a year-over-year basis because for next year, you've actually taken out the upgrade-related investments required other than on the 5G networks? Or is there a possibility that we will continue to see more than KRW3 trillion of investment requirement for next - CapEx investment requirement that is for next year or two years from now? I do understand that the whole circumstances are quite fluid but could you provide some more color on this?

First, the simple answer is on a stand-alone basis, the 2019 figure. Yes, it's quite difficult for us to give you a specific guidance for 2 or 3 years to come. We will have to look at the market situation as well as a competitive backdrop and also look at the level of 5G activations under which we will be making decisions on investment.

Currently, there are no participants with questions. [Operator Instructions].

With no further questions, we would like to now close the Q&A session. Thank you very much for your questions as well as your interest. Thank you, once again, for joining us today. This brings us to the end of KT's Q1 2019 Earnings Call. Thank you.