Good evening ladies and gentlemen. Welcome to Chungwa Telecom conference call for the company’s first half 2012 operating results. During the presentation, all lines will be in a listen-only mode. When the briefing is finished, direction of submitting your question will be given in the question-and-answer session. For your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit www.cht.com.tw/ir under the In Focus section. Now I would like to turn over to Fufu Shen, the Director of Investor Relations. Ms. Shen, please go ahead.

Thank you. This is Fufu Shen, Investor Relations Director of Chunghwa Telecom. Welcome to our second quarter 2012 results conference call. Joining me on the call today are Dr. Lu, Chairman & CEO and Dr. Yeh, CFO. During today’s call, management will first discuss business, operational and financial highlights, then followed by Q&A On Slide no 2, please note our safe harbor statement. Now I would like to turn the call over to Chairman Lu.

Thank you, Fufu and hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our second quarter 2012 earnings results conference call. First of all, I am pleased to announce the promotion and appointment of our new President, Dr. Yen-Sung Lee, who has assumed the new role as of yesterday, August 29. Dr. Lee will oversee all of Chunghwa’s daily operations. Previously, Dr. Lee was the Senior Executive Vice President, supervising the marketing and IT departments. With his extensive engineering and management background, he has significantly contributed to the development of our ICT & Cloud businesses. Having been with Chunghwa for over 30 years, I am confident that Dr. Lee will continue to make further contributions to our future growth. Please refer to slide 3 for our second quarter overview. Before entering into our business segments, I would like to highlight several points to you as follows. Even though we continue to experience heavy NCC regulatory pressure and intense market competition, we were pleased that our first half results were in line with our earlier guidance. Faced with an evolving telecom landscape and the fierce market competition, we continue to evaluate these changes while also taking proactive steps in key growth areas to help stabilize our overall business. As an example, mobile value added service business continues its growth momentum. In order to accelerate the mobile VAS growth, we began offering different promotional packages bundling free on-net call services with data packages. These packages are designed differently to target and appeal to various types of mobile subscribers and we have begun to see some good success with such offerings, which I will discuss shortly. For our broadband business, we continue to see our growth in subscribers for high-speed fiber connections remaining on track, especially demand…

Thank you, Chairman Lu and good day, everyone. Thanks for joining us today. I will review our financial results in detail beginning with slide 13. While total revenue for the second quarter was flat compared to the same period 2011, operating costs and the expenses reported 1.9% increase year-over-year. In spite of a reversal of allowance for doubtful accounts. As a result, income from operations and EBITDA decreased to 6.3% and 3.6% respectively. In addition, we recognize a non-cash impairment loss on real estates and the financials asset totaling 1.4 billion NT dollars. As a result, net income decreased 15.2%. The EBITDA margin decrease was primarily due to tariff cut, the higher cost of handset sold including that from our subsidiary Senao as well as the growth of corporate solutions and ICT business of which the EBITDA margin is relatively lower than the traditional telecom service. Please refer to slide 14 for our business segment revenue. Total revenue for the second quarter was flat year-over-year. The mobile VAS of revenue and handset sales kept its growth momentum. However, the growth was offset by the decline in mobile voice revenue attributable to the marketing campaign and the NCC tariff reduction. The decline in DLD and the broadband revenue due to tariff cuts also contributed to overall flat growth. Slide 15 shows the breakdown of operating costs and expenses. The operating costs and expenses increase in the second quarter is mainly from the cost of handsets sold. Maintenance, material, rental and depreciation expenses also increased in order to support our broadband and mobile internet service promotions. In addition, we considered the results of procedures implemented to enhance the collection of account receivable as well as the experience of decreases in uncollected receivables, and then decided to reverse 1.5 billion NT dollars of…

I have multiple questions for you. The first one is regarding the broadband subscriber and actually pricing environment. If I understand correctly you mentioned that ADSL subscribers pocket, the pick up is weaker than expected. Do you think there is any need for you to cut price further basically in order to stimulate that demand or what would be your measure against that? The second question is regarding the IPTV (inaudible) that the reported operationally declined into this quarter, what’s the reason behind that and how should we look at ARPU figure. I understand that it’s now 136 from 14 something last quarter. And now the next question is regarding the reversal of bad debt, could you kindly give us an example of what tactics exactly has been changed and if it’s mainly on the residential or corporate side that is being improved on. And if we try to look at the EBITDA trend on a normalized basis, can I just basically deduct 1.56 billion from your reported EBITDA in the second quarter and therefore EBITDA underlying trend actually declined by 10% year-on-year in the second quarter, would this basically reversal in bad debt a onetime gain in the second quarter or how should we look at it? Thank you very much.

For your first question regarding the (inaudible) subscribers and the pricing, the (inaudible) subscribers picks up in high speed and is in line with our expectation as we mentioned in presentation. But the low speed part, especially the low speed, it is part, the market demand seems to be slow in our (inaudible) okay but we have no trend to cut price any more.

For the question number two about IPTV, the revenue the ARPU actually if compare with the first quarter I think you know, I would say that you know partly because in the first quarter that’s our commissioning of Chinese New Year, I think that’s part of the reason for the revenue increase pay. But hopefully I would believe the trend for the future ARPU for the MOD will mildly increase in future?

Okay first for the back sell reversal. Yes I think you can deduct from the EBITDA. Also you can figure it out by yourself and I think in the last few years it seems 2008 up to the financial crisis and we kind of increase the creative risk assessments. And also we also fit some KPI and ask each fringe to watch their credit risk carefully. So it is a trend, it is not just that happened this year, but we are not sure about the trend. Until now we are kind of comfortable to revise the allowance for doubtful accounts.

Just a follow-up question on the ADSL and the (inaudible) question. Firstly, on ADSL, what do you think is the reason behind the weaker than expected pick up? Is it competition maybe on the lower end from the cable operators or maybe we've already come to a state where the market has really matured and your high speed broadband subscriber growth must come from ADSL and therefore the ADSL subscribers should decline. And the second question, so is this (inaudible) 1.56, be then just one-time for this quarter and we should not expect any further [right back] in the subsequent quarter if am I understanding that correctly. Thank you?

Regarding the weaker than expected pick up from the normal speed ADSL, our current, most recent assessment of the market condition is that probably it’s, [saturation] from the household and the company we're now looking towards finding applications in so called internet (inaudible) the device connections with lower speed ADSL solutions. So we’re still hopeful you know, some increase in usage of lower speed in our services. In terms of the reversal, we don’t expect further reversal that is because based on our estimates, we think now the number is kind of reasonable and we don’t think of there would be further change in suite. Okay, thank you.

The next question is Andy Chu from Nomura. Please go ahead.

Thank you for the presentation. And just three quick questions. First is if go to a page 11 when the company is talking about the particularly on the NCC proposal for the amendment sort of Telecom Act. And how should we sound like understand from June was particular classic approach towards such proposal should we expect (inaudible) the company will law by complete was join of such proposal from the executive or the company is looking for like a lot of a major modifications to the proposal some mid to NCC and any timeline we should expect of term major resolution on this particularly this will test my question number one. Question number two is with regards to CapEx statute of the company. We look for the first half of the company (inaudible) 43% of his budget CapEx guidance for the year full. On Friday we had compared to around 38%. So net less for the full year should we expect the company to overspend versus this CapEx guidance want to the company will maintain CapEx spending were seen 33 billion [anti-dollars]. And the last question is on when I look at the financials results on a quarterly basis, in fact for our second quarter is almost public for a first time within the last three years to quarterly [indiscernible] no actually, these are declining on a year-to-year basis compared to the quarter of the previous year. So can the company talk a little bit about going forward let’s say for third quarter, should we expect also the quarterly revenue will experience some kind of a decline when compared to the quarter of previous year? Thank you.

Okay. Your first question about the amendment of the Telecom Act, current proposal submitted to (inaudible) from NCC there are certain articles which we online in our prepared on slide number 11. We (inaudible) these measures are not quite appropriate to be stated in such a way in this kind in the Telecom Act and also it’s too much, we would like to see the proposal focus on establishing environment for new ranges in the development of digital convergence related new offerings. So as I said we are presenting our opinions to certain agencies and also try to communicate with the public about the nature of the amendment, so the timeline for this (inaudible) quite process it has to go through the elected and review. If the elected approve and such proposal it will submit to designate again for the review again. So it is going to take a while. So the company will try our best. We are already amongst opposition regarding certain articles of revision and for example the article related to the (inaudible) the company has already stated our opposition through this kind of proposal. So would have to some major changes going forward. Our CapEx, the guidance of CapEx is slightly higher than last year, full year they have the office surveys and from our spending we believe we will not overspend. We will not overspend, so will maintain our current target. The revenue, I would like to suggest please compare our performance against our guidance because we have experienced relatively heavy regulations on certain major services we offer, (inaudible) the long distance tariff cuts that was into effect earlier this year. This came of changes, really contributed to the decline in revenue. So once we except this in to our guidance, please compare our performance against that and we hope our environment would be improving going forward. The new NCC commissioners have just assumed in the new law starting earlier this month and we have heard repetitively from the Chairman of new NCC Commissioners. That thing is for development and we welcome this kind of attitude. So hopefully, you know, we (inaudible) in our performance in the years to come.

If I may just ask one follow-up question, then (inaudible) just as a follow up, my first question is there any kind of like an (inaudible) with some mid proportional to the legislative (inaudible).

Yeah, from my understanding, there is no such denying for the executive unit to submit to (inaudible) no such denying.

(Operator Instructions) The next question is Joseph Quinn from Macquarie.

Just two questions. First is on your promotions and the second one is on the regulatory side. Your new summer promotions, I have seen a lot of promotions locally here in Taiwan. However when we are looking at the actual overall sub growth they do seem to be still logging a little bit behind Taiwan Mobile and (inaudible). I was just wondering has management any opinions on that decision. Is it maybe due to the fact that the three on-net calls have been promoted with both Taiwan Mobile and Far EasTone prior. So maybe something different is needed to excite the market. And then on the regulatory side, the 4G licenses as you mentioned will be issued next year, but also soon this will need some refarming of spectrum. I am just wondering what impact that will have on your application to renew your 2G licenses. I am just wondering what your opinions are on that as well. Thank you.

Okay. Let me answer the second question first about the refarming of some of the (inaudible) kind of being used in all 2G. We predict the extension of 2G license towards year 2017 is already set and we are trying for such extension and is under the view. So we believe this will finally approve in the near future. So the refarming will not affect our operation of 2G until year 2017. So that’s my answer to your second question.

Just looking at the 2G spectrum, that’s currently there especially their focus on 900 MHz. Do you think it’s possible for you to totally avoid any refarming on both your 1800 and 900?

I wish we had such privilege, but it’s the government who has the authority to plan the use of the spectrum for LTE or 4G licenses and the companies, if we can retake this portion of the spectrum, that will be great yeah. The mobile, we are working to we will be more aggressive in the coming months during this year. So we hope, we will regain our momentum as compared with our peers in this market.

Are you particularly willing for any -- like is there the launch of the next iPhone is may be your ratings become much more aggressive on versus your peers because anything in particular, that you will see yourself becoming more aggressive. As I said, I have seen your advertisers, I do see that you are definitely more aggressive on the ground, but I am just wondering from getting from the consumers, what do we think will really trigger yourself being more aggressive and obviously more effective in getting those subscribers.

In Chungwa Telecom, we are the first to introduce iPhone in this market. Okay but you know the next iPhone you know I am sorry I am not in a position at this moment to say anything okay. Something that you know smartphones is very important and as we indicated the percentage of customers you know owning smartphones is increasing and I believe this is going to be the major trend coming forward. Well there are more aggressive plans, please wait and see it.

(Operator Instructions) The next question is Piyush Mubayi from Goldman Sachs please go ahead.

My question concerns slide 24 in your fiber rollout plans. I can see that very quickly you’ll get coverage up to 70% in terms of customers who can get greater than 100 Mbps and then the FTTH numbers picks up thereafter to look at to about 3 million by 2016. What does this mean for your CapEx plans going forward in terms of 2013, ‘14 and ’15, if you can give us any guidance? Thank you very much.

The fiber solution, Fiber-to-the-home, Fiber-to-the-x solutions that we offer right now. Our CapEx, our construction will be in line with the customer demands. Although we have total package for reference but then in our implementation, we will be very careful in spending our CapEx there. If the market is found [favorably] then we will accelerate in our spend or CapEx over in the [second] service. And in response is very relatively small then we will be careful. So we have this in mind and that's how we manage our CapEx.

The next question is from Neale Anderson from HSBC. Please go ahead.

Two questions from me please. On the wireless CapEx side, and traffic particularly, first you highlight the Wi-Fi access point up to 35,000 by the end of year, are you able to say what proportion of what is traffic is begin routed on the Wi-Fi network and how you see that developing? And the second one relates to usage of your smartphone customers. You’ve broken down the sales by top-tier, mid-tier and low-tier. Are you able to say how the usage as say between your top-tier customers and the low-tier customers in terms of the amounts of traffic they generate? Thank you.

[Wireless] CapEx by wireless I interpret as Wi-Fi okay because we offer mobile service, okay. So the Wi-Fi you know we believe for household customers and we pick it as an extension of our broadband access you know network. And those in our capabilities are filled in our service modem, okay. So there is no extra CapEx included, when we deploy Wi-Fi at homes. For those up are public Wi-Fi, the cost is relatively small okay. I don't have exact numbers here, okay. Amount of traffic of (inaudible) from Wi-Fi at homes are statistically it’s indicated reasonable public, for the public it’s about single digit less than 5% at this moment, okay. But for household it’s more than 75% traffic is going through Wi-Fi and then towards broadband access. Well, I am sorry we don’t disclose the breakdown of the revenue generated from various tier of smartphone customers.

I am sorry, it’s more on the comment on the traffic they tend to generate, is that much more by the top tier could you give any indication of how significant the traffic is relative to the low tier, so that was my query rather than the revenue?

Well you know, yeah okay Dr. Yeh.

I think to give some understanding of top-tier and the low-tier smartphone is that for example, for the top-tier smartphone like 85% of them subscriber [data print] but for the low-tier one is a kind of low just like 20% to 30%. So I think that’s the difference between the top-tier and the low-tier smartphone user behavior. Thank you.

May I add some points recently we found that mid-tier subscriber they tend to subscribe the percentage of data printing subscribe has to be more, okay. So I think that’s why we, I think earlier this year we discussed about we would like to see the handset model for mid and low tiers is getting more and more from beginning of this year, then we would like to see more comprehensive function encryption with the mid-tier kind of smartphone so we believe that this will happen.

(Operator Instructions) The next question is Steven Liu from Standard Chartered. Please go ahead.

I have three questions. First one regarding the ICT and the cloud computing service, in which category do you enclose ICT and cloud computing revenues and what is the percentage revenue contribution in the first half may be in the second quarter? And the second question regarding the EBITDA margin by mobile and fixed line, can you give the EBITDA margin and if not possible can you give some idea about the trend in the fixed and EBITDA margin and mobile EBITDA margin in the past few quarter? And third question regarding the high net and broadband and MOD subscriber on revenue, can you give me some idea about the cloud clarification and classification, definition of high mix subscriber, broadband subscriber and MOD subscriber and how do you separate the revenue as we are thank you.

The ICT and cloud, we do not disclose revenue for this in our report. Okay thank you for your consideration. But we believe these are new trends, new revenue stream areas and we're working hard to create new revenue source of it. Let me answer the third question first. Okay? The HiNet is the brand name for our ISP service. Internet service. So and MOD is the brand name of our IPTV service. I don't know whether you get it or not.

Regarding ICT and the cloud computing, which category. It is in the fixed line -- which category you include the revenue ICT and cloud computing? Is it all in the mobile, or fixed line business?

Currently, we put this item under the domestic fixed communication segment. Unidentified Analyst

Thank you, how about the EBITDA margin breakdown?

Yeah, we don’t provide such breakdown. So we might consider in the future, but at this stage we don’t provide that and to add something to your first question. The ICT revenue for the first half is $3.5 billion, but we don’t disclose it separately. Okay for that we mention in our slide, it grew 25.1% and so that is based on the 2011 first half is 2.8 billion NT dollars and the 2012 first half is 3.5 billion NT dollars.

Let me revise you know the answer you know for the question for the ICT and Cloud revenue. I think the ICT and Cloud revenue currently you know actually allocated in a different category at the moment depending on its characteristics. And probably in domestic fixed or mobile it all depends on the --

Okay. For the disclosure policy since this among this is very insignificant. So we don't separate it out, but I give you the number in the first half. You can see what is the magnitude, but we then have to separate a line for these numbers.

Okay. And how about EBITDA margin trend in the mobile and the fixed line. Is it still declining in the past few quarters or stabilizing?

So far because this year tariff reductions and also because of the handset subsidy it is still declining. In the future we have to see what the competition and tariff regulation. So but this year, yes.

The next question is (inaudible) from Bank of America-Merrill Lynch. Please go ahead.

Hi thank you for the presentation. Three questions, one is the mandatory tariff reduction, what will happen after the current scheme finishes, after that 2013 will there will be new reduction scheme coming or what’s your position to the government or proposal to the government? Second question is I understand that your mobile service revenue does not include those interconnection revenue coming from your own fixed line subscribers. So if you were to add those revenue to the service revenue, how does that compare to your competitor? Third question is for your PowerPoint slides page 23, you were talking about that you expect the -- you are building the network, expand the base station by 70% and backhaul by 73% to meet 65% increase in data traffic in 2012, what’s your expectation for 2013? Thank you.

On your first question about the mandatory tariff reduction, as I said briefly for answering some question, the new NCC Commissioners just from earlier this month and they have expressed their basic policy for the your term. It is more for development and so we also imagine about the revision in the relation on tariff. So we are booking and we are still innovating to see more information from NCC about this. So currently we do not have very much information on the new or any such schemes to be appropriate here.

Yeah there are some early discussions that, it seems so from the media news that seems your company is preferred to have may be like a one time bigger cut in one year rather than you know a small cut every year, is that still your position?

No, that is just one opinion expressed you know by myself. That is only a personal opinion, the recommendation consideration at that time. Yeah no, that is not the company’s position.

(Operator Instructions) The next question is Piyush Mubayi from Goldman Sachs. Please go ahead.

Could I just ask what your views on dividends are in the medium term. I would greatly appreciate if you would help us understand your thinking on that?

I think so far we just see, we pay as much as permitted under the law and we don’t see any changes so far now so and also is already decided by the board. So we cannot answer this question now. Thank you.

So, just one if I can ask. If the NCC proposals go through, will that in anyway alter your assessment of dividend and the risk associated with paying out dividends?

We don’t have answer for that and so we would wait and see what change would be made. So, now we cannot comment on any hypothetical question. Thank you.

The next question is from Steven Liu from Standard Chartered. Please go ahead.

My question is regarding your fixed line business, I think still declining. Can you give me some idea when will you expect the fixed line revenue to stabilize given the roughly to grow in ICT cloud computing and obviously above [migration] to fiber obviously may be a driver, what do we expect the [tipping] point to happen?

This is a very good question and I believe the [ITU] is currently assessing the amendment in connection with (inaudible) regulation. If certain to conclusion our results can be reached towards the end of this year as the ITU [regulatory] meeting. Then six month as you know we'll have chance maybe to (inaudible) for every operator.

That means you maybe the Taiwan (inaudible) the policy of mandatory decrease in tariff to mean that.

Well, you know the NCC they have revised they are in reconsidering regulatory positions on tariff okay and we'd like to see, this is already very competitive in Taiwan so we would like to see up no such heavy regulations of price to free markets. So I hope that in our view mandated tax on the retail tariff plan stop sometime hopefully next year.

The next question is Sydney Zhang from Bank of America Merrill Lynch. Please go ahead.

Sorry, I have three questions and before you begin to answer the second and third question. Maybe now me repeat the second question I had was the mobile service revenue I understand your company don’t include the interconnection revenue from your own fixed line customer, so if you were adding add those revenue in to apple-to-apple to compare your competitor, how is the growth rate looks like? Then the last question I had was on the CapEx you have on your slide 23, you were talking about 2012 the base stations bandwidth increased 70% and the backhaul increased 73% in 2012, just my question is your CapEx this year can support some of those increase or expansion for next year’s traffic growth?

The second question first about the base stations bandwidth, we have measured the base station bandwidth against the demand on traffic and we believe overall the capacity of our mobile network is capable of taking all these demands, but the question really comes up when we encounter very specific occasion at certain busy hours that’s the issue; the company we have been working on expanding our capacity this year and so I believe overall this is okay for this year and may be from next year. The traffic increased [late] in mobile plan. We experienced something like 65% during the past few years and it is almost double in the year. So will be (inaudible) in capacity of mobile network that’s why we adopt Wi-Fi off load as one of the means to off load traffic. And I believe there are other means for us to enter some region (inaudible) sales or even the networking on this can help to deviate the traffic load. The CapEx to support this is already in our CapEx plan.

Sydney back to your first question okay, and your last question okay. I think you are probably asking about the fixed mobile kind of pricing that interconnection revenue, if we know normalize that part what it will be like for the year for the breakdown right. So the market share, I was talking about the market share of the mobile revenue in this market for the first half probably for Chunghwa leaving around 33%. If we normalize that part it’s probably get above 1 to 1.5 points increase of that, that’s about the number.

(Operator Instructions) If there are no further questions. I will turn it back over to Chairman Lu, please begin.

Okay, thank you very much for participating in our conference call for the results for the first half or the second quarter of 2012. Thank you so much. Good night.

Thank you Chairman Lu. Thank you for your participation in Chunghwa Telecom’s conference call. There will be a webcast replay within an hour. Please visit www.cht.com.tw/ir under the In Focus section. You may now disconnect. Good-bye.