Welcome to the Chunghwa Telecom conference call for the Company's Third Quarter 2015 Operating Results. [Operator Instructions] And 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 CHT IR website, www.cht.com.tw/ir, under the IR calendar section. Now, I would like to turn it over to Fu-fu Shen, the Director of Investor Relations. Thank you. Ms. Shen, please go ahead.

Thank you. This is Fu-fu Shen, the Director of Investor Relations for Chunghwa Telecom. Welcome to our third quarter 2015 earnings results conference call. Joining on the call today are Mr. Shih, President and Mr. Chen, CFO. During today's call, management will first discuss business, operational and financial highlights. Then, we will move on to the Q&A session. On slide number 2, please note our Safe Harbor statement. Now, I would like to turn the call over to President Shih.

Thank you, Fu-fu Shen. Hello, everyone. This is Mu-Piao Shih. Thank you for joining our third quarter 2015 conference call. We reported robust operational results for the third quarter, with total revenues, operating income, pretax income, net income and EPS all increasing year over year and outperforming our guidance. Along with our continuous successful promotions, we have accumulated 3.56m 4G subscribers by the end of September and expect to have more than 4.2m 4G subscribers by the end of 2015. As you know, the iPhone 6s came out on October 9 in Taiwan. Though the launch of the iPhone 6s may help boost 4G service subscriptions, related expenses will also increase and bring down our margin in the fourth quarter. Taking into account our strong first three quarters performance, we expect our full-year results will exceed the guidance despite the seasonally soft 4Q expectations. The 2.6 gigahertz spectrum auction is expected to begin in November. We're studying and evaluating strictly the technology and investment efficiency for both FDD and TDD spectrum bands, hoping to acquire the band which most benefits our operation. We plan to utilize the 2.6 gigahertz spectrum band to help offload the heavy traffic in metropolitan areas in the second quarter of 2016 at the earliest. Slide 5 provides an update on our mobile business. During the third quarter, mobile VAS revenue grew by 12.1% year over year, mainly driven by the 17.4% increase in mobile Internet revenue. For mobile operations, we're focusing on the 4G service promotions and mobile Internet subscriber expansion by further targeting the mid-to-low tier end customers. We continue leveraging our high-speed 4G network to increase the adoption of our value-added services and new applications by bundling Hami services such as mobile TV, audio and video streaming in many of our promotional plans.…

Thank you, President Shih. Now, I will review our financial results in detail, beginning on slide 10. Slide 10 contains our income statement highlights. For the third quarter of 2015, total revenues increased by 0.1% and operating costs and expenses decreased by 6.4% year over year. Our income from operations increased by 25.7% and our net income increased by 21.3%. In addition, our EBITDA margin increased to 39.7% in the third quarter, from 35.2% the same period last year. Please refer to slide 11 for an update on our business segment revenue. The increase in total revenues was driven by the growth in mobile value-added service revenue and ICT project revenue which offset the decrease in fixed and mobile voice revenue. Moving on to slide 12, our third quarter 2015 operating costs and expenses decreased by 6.4% year over year, mainly due to the lower costs of goods sold and the decrease in interconnection fees and depreciation expenses. On slide 13, in the third quarter of 2015, cash inflow from operating activities decreased by NT$1.07 billion or 5.8%, compared to the same period of 2014. As of September 30, 2015, we had NT$20.59 billion of cash and cash equivalents. The increase in EBITDA margin was primarily due to the total revenue growth and the decrease of interconnection expenses in the third quarter of 2015. Slide 14 shows our 2015 third quarter operating results as compared to our guidance. We reported robust operating results in the third quarter of 2015, resulting from the decrease in total operating costs and expenses and the year-over-year increase in operating income, pretax income, net income and EPS which all outperformed our guidance. The lower operating costs and expenses were mainly due to the lower-than-expected costs of goods sold, interconnection expenses and depreciation expenses. We expect our full-year results will exceed our guidance by taking into account our strong first three quarters of performance and the seasonally soft 4Q expectations. Lastly, on slide 15, though we will continue to construct our 4G and fiber network, we expect the full-year CapEx for 2015 to be less than the budgeted amount of NT$30.7 billion. We will continue monetizing our existing installed equipment and building infrastructure for new services such as the 300 mega broadband, based on the potential demand and effectiveness of the service. Furthermore, the mobile network will be constructed according to the existing equipment utilization status and business growth potential to enhance capital efficiency. Thank you for your attention and we would now like to open up for your questions.

[Operator Instructions]. The first question is from Jack Hsu from Sinopac Securities. Go ahead, please.

Thank you and congratulations for the EPS is over the expectation. And I have three questions. First question is could you inform us why the revenue is less than expectation but the EBITDA margin and -- or the operating margin is over the expectation? This is the first question. Thank you.

Okay. Let me answer that. I think our revenue, actually, year over year, remained flat and a bit lower than the forecast and the reason is simple. Although we have good sales in iPhone, but however the non-iPhone related cost of goods -- handset sales was lower than expected. And also, some big projects, the recognition of the revenue was just deferred to the fourth quarter. So that's also the reason, less handset sales also contributed to the higher EBITDA margin and the lower cost of goods sold.

And my second question is what's our plan for the 2.6 gigahertz spectrum bidding? Thank you.

We expect to acquire certain amount of spectrum resources at a reasonable price for 2.6 gigahertz bidding in November. Since we already have a sort of assessment on the spectrum on demand as well as our financial planning, 2.6 gigahertz spectrum is good for hub zone traffic offloading. So we certainly aim to acquire a certain amount of spectrum this year. Thank you.

One follow-up question. Will we use the small cell optical cell to cooperate with the base station in the future?

Actually, we already have purchased 1000 base stations on the small cells. We're already on the trial basis, commercial trial basis. So in the 2 gigahertz -- 2.6 gigahertz era, it's for sure we will use more and more small cells to enlarge the capacity. Thank you.

And my final question is could you inform us the details about our plan for the development of -- about the enterprise customers in 2016? Thank you.

Could you repeat the question?

Oh, sorry. Could you inform us the plan about the development in the enterprise customers in the 2016? Thank you.

For the enterprise customers, right now, I think we will leverage our technology advantage and bring in. We will explore the business opportunity from enterprise customers to develop and to promote various ICT total solutions, such as cloud, IDC, information security, mobile enterprise, data and Internet of things, this kind of services.

Next we are having Peter Milliken from Deutsche Bank. Go ahead, please.

Yes, I was also interested in the enterprise business, because it does seem a bit of a focus in your presentation which is good to see. Are you seeing the demand coming through in these enterprise areas? And is it confined to cloud or is it broader than that? Are you seeing a corporate upgrade cycle starting to happen?

Of course, it's not confined to cloud. Actually, for the ICT, I think we're very focused on the enterprise ICT total solutions which we can leverage our advantage on network infrastructure, our datacenter, our other kind of network capabilities to expand our ICT business. So that's -- we think it should be various kinds of opportunity out there for us to pursue.

And so demand seems to be picking up. Because regionally, enterprise has been a bit slow for everybody, I think. Are you starting to see the demand coming through?

Actually, from our revenue breakdown, we understand that our enterprise revenue actually increased year over year, the breakdown percentage wise. So we do see this kind of demand coming.

And one other question from me. Mobile value-added services, what are the popular services that are driving the mobile revenues up year to date?

Of course, right now, are we talking about mobile VAS?

Yes. This is data. Okay, it's just the definition of it. Got it. Understood. Thank you. So, on the content side, that's not really a big driver yet on the mobile side.

Next we’re having Neale Anderson from HSBC. Go ahead, please.

Can you hear me? Hello? I'm having trouble with the line. I can't hear anything. I'm going to drop-- [Technical Difficulty]. Okay. Hi. Everything went silent there for a while, so I'm not quite sure if you can hear me. I have three questions. The first one was on slide 15, on the fixed-line CapEx. It seems to be pretty low at the moment, NT$6.8 billion compared to a NT$13 billion budget. Do you expect to spend the full-year budget of NT$13 billion? And is that mostly maintenance or does that relate to any new rollout of new broadband technology or equipment? Thank you.

I think this year we have some big projects. CapEx will be a bit slower than expectation and deferred to next year. So that will be not fully used this year. It will be just deferred to next year.

Is that basically new broadband infrastructure? Is that the way to think of it? There's also an Internet category I see you have there.

Can I add in some points? You mentioned about the NT$13 billion CapEx for fixed, right?

Yes.

And that NT$13 billion actually including the backhaul CapEx for mobile, because we're an integrated service provider. So usually about roughly 15% to 20% of the fixed CapEx actually allocated for the mobile backhaul and that's one thing I would like to say. And another thing, we have some deferred projects, CapEx spending. That's for the Internet. Again, Internet is part of the fixed line. So the Internet CapEx, we do have some differed CapEx spending from this year to next year.

The second question I had was on the weakness in MOD revenues in the quarter. Is that just seasonality? Could you explain a little bit there?

MOD, as I mentioned before, I think we're -- we began adjusting our cooperation scheme with channel providers and the new scheme brings down the operating expenses but also lowers down our revenue. But in the longer term, we expect this structural shift will enhance our IPTV margin.

Sorry for repeating the question. It went quiet for a while. Just finally was on whether you still had the plan to introduce tiered pricing in May of next year and I guess you may have covered that as well. Apologies if so.

Yes, we anticipate 4G unlimited data plan will be removed next year. However, it still depends on the market sentiment and the competitive landscape. Because next June will be two years contract expired, so I think it's a good time to consider to remove the unlimited plan, but we already introduced several tiered pricing structures. We think next year is good timing. Thank you.

Next we’re having Richard Chan from AIA Taiwan. Go ahead, please.

Could you give us more color on the upcoming spectrum auction? Do you have any idea of your plan, how the money will be for the final price for the D1 to D4 spectrum which will be the main thing that probably every operator will compete for? Also, any strategic plan to eliminate the potential threat from the smaller players? It seems they have less capital than you guys by taking a more aggressive move in D1 to D4. And will you plan or any interest to take at least two blocks in FDD? Thank you.

I think D1 to D3 is 20-megahertz bandwidth. It's more attractive than D4 and TDD. But we have kept the option open for TDD, because if the price is relatively very reasonable, we have no reason to give up. So we keep the option open. Thank you.

Yes, but what I want to know is that were you interested at least to take two blocks in FDD, I mean from D1 to D4?

Currently, we have no comment. We have no comment on this question.

Okay. I have one more question. Could you give us a picture of how the tiered pricing probably will look like in the next year, I mean the allowance in terms of the data usage, the lowest allowance for the lowest pricing? Just want to sense the ARPU potential from implementing the tiered pricing next year. Thank you.

Regarding the tiered pricing, we're still under evaluation so, so far, we have no specific plan. But we will go through a very thorough evaluation and offer the good structure. Thank you.

[Operator Instructions]. Next we’re having Gopa from Nomura. Go ahead, please.

Sorry I missed this earlier. What was the 4G subscriber target that you mentioned for this year? Also, do you have any targeted number for the subscribers for next year? Thank you.

Yes. We expect by the end of this year that Taiwan's 4G subscribers will be 11m. Chunghwa Telecom we expect to more than 4.4 -- 4.2m. Thank you.

[Operator Instructions]. If there are no further questions, I will turn it back over to President Shih.

Okay. Thank you for joining in our conference call. Thank you.

Thank you, President Shih and we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit www.cht.com.tw/ir under the IR calendar section. You may now disconnect. Thank you and goodbye.