Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the company’s second quarter 2017 operating results. [Operator Instructions] For your information, this conference call is now being broadcast here live over the Internet. 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’d like to turn it over to Ms. Fu-fu Shen, the Director of Investor Relations. Ms. Shen, please go ahead.

Thank you. This is Fu-fu Shen, the Director of Investor Relations for Chunghwa Telecom. Welcome to our second quarter 2017 results conference call. Joining me on the call today are Mr. Sheih, our President; and Mr. Kuo, our Chief Investment Officer. During today’s call, management will first discuss the overview of our business during the quarter, followed by operational and financial highlights. Then, we will move on to the Q&A session. Before I turn the call to President Sheih, I’d like to introduce Mr. Harrison Kuo, who has been in charge of different fields at Chunghwa Telecom including corporate planning, accounting and investment since 2005. Mr. Kuo also has extensive experience supporting the company’s President and CFO by supervising its financial activities. Now, I would like to hand the call over to President Sheih. And Please note our Safe Harbor statement on slide 2. President Sheih, please.

Thank you, Fu-fu and hello everyone. Welcome to our second quarter 2017 earnings conference call. For the second quarter of 2017, we continued to retain our market leading position in terms of the number of mobile subscribers and mobile revenue. We also managed to have the lowest churn rate despite certain challenges. We’re pleased to say that we’ve successfully mitigated the mobile subscriber loss, and the allocated resources to guide mobile subscriptions toward high end plans. Going forward, we will continue to strengthen our subsidy efficiency by allocating more resources to high end bundled plans, aiming to reinforce our user stickiness and acquire an increasing number of new high end customers. On the broadband side, we’re noticing that competition from cable operators has decelerated a bit. Although the number of our broadband subscribers slightly declined year-over-year, we’re encouraged to experience a small quarter-over-quarter increase in the second quarter of 2017. Going forward, we will continue to leverage our marketing analytics for precision marketing to further strengthen our high speed service adoption. Meanwhile, by offering 4K services, we enable our customers to enjoy quality content via our MOD IPTV platform. To further develop our MOD service, we will continue our revenue sharing arrangement with channel providers and we aim to enrich our MOD content by carrying OTT services in the near future. Looking ahead, we will continue to leverage our expertise in cutting edge communications technology as well as our marketing resources to strengthen our user acquisition, enhance user stickiness, diversify our product offerings and solidify our market leading position in the market. Now, I’ll walk you through each of our business lines. On slide 5, I would like to update you on our mobile business. The number of our 4G subscribers and mobile internet adopters continued to grow in the…

Thank you President Shieh. Now I’ll go through our financial results in details, beginning on slide 10. Slid 10 provides you with highlights from our income statement. For the second quarter of 2017 total revenues decreased by 0.9% and operating costs and expenses remained flat year-over-year. Our income from operations decreased by 4.3% and our net income decreased by 5.6% year-over-year. In addition our EBITDA margin decreased to 36.54% in the second quarter from 37.35% in the same period of 2016. Please refer to slide 11 for revenue breakdown by business segments. The decline in total revenue for the second quarter of 2017 was driven by the decrease in voice revenue and ICT project revenue, which was partially offset by the increase in mobile value added service revenue and smart device sales. Moving on to slide 12, our operating costs and expenses remained flat year-over-year in the second quarter. The higher cost of goods sold and the marketing expenses offset the lower interconnection and ICT project costs. On slide 13, cash flow from operating activities for the second quarter of 2017 increased by NT$2.53 billion, or 18.9% compared to the same period of 2016, mainly due to the lower income tax paid. As of June 30, 2017, we had NT$48.34 of cash and the cash equivalents. Slide 14 shows our operation results as compared to our guidance. In the second quarter of 2017, our revenues were slightly lower than our expectation. However, our operating income, net income and EPS all outperformed our second quarter guidance. Lastly, slide 15. We are budgeting CapEx of NT$30.03 billion for 2017. We will focus on investments in our core businesses, including FTTx, 4G service platforms and IDC among others and precision construction principle. Thank you for time. We will now like to open the lines for questions.

[Operator instructions] Our first question is coming from Peter Milliken, Deutsche Bank go ahead please.

Operator, can you ask for next one then can ask Peter to come back later.

Okay, got it. Our next question is coming from Jack Xu, SinoPac Securities, go ahead please.

Thank you and also congratulation for the company’s guidance. I have two questions. My first question is, we have just mentioned we will have the new OTT service, will new OTT will highly related with TVBS while joining our MOD. Is it related with the TVBS or is something else? And my second question is presuming from our 4G subscriber number at the end of the first half of 2017 and will we change our target of 4G subscribers in the end of 2017? Thank you.

About the OTT business we’re inviting local channels to join our channel providers and put there – our MOD personnel. And above that target subscribers for end of 2017, the 4G subscriber will reach 8.4 million as we said in last time. Okay, thank you.

And by the end of first half the 4G subscriber number is roughly about 7.5 million.

Thank you.

Thank you. Our next question is coming from Peter Milliken, Deutsche Bank, go ahead please.

Yes hi, sorry about that earlier. In terms of revenues they would be weak in the first half of the year. In the second quarter service revenue was down 3% year-on-year domestic fixed line revenue was down 8%. Is there a way for you to be able to turn that positive that you can see or do you just need to keep on cutting costs to try to hold earnings that are relatively flat level? Thank you.

I think the first half is compared with the [indiscernible] revenue is little bit slightly behind our guidance. But we believe in the second half we expect in the ICT this will have some gap so hopefully, we can meet our guidance at the end of this year.

Right, thanks. And you spent a lot of money on the datacenter that you turned on fairly recently. Can you tell us the utilization of that or have potential growth profile of how that will drive the business?

Basically we don’t really share the utilization rate of our datacenter, but I can inform you that we see more customer come in and it’s really meet our expectation.

Okay. And one final question from me. You turned on the 2600 in March of last year, does that mean there was a full three month of costs of the 2600 network in the second quarter last year? Thank you.

I’m sorry really, Peter you mean the CapEx spending for 2600 or, what’s your question? Could you repeat that?

Yes. Did the second quarter last year have a full quarter of 2600Mhz OpEx or was it only a partial contribution to costs last year?

Sorry, we didn’t really separate out those maintenance fee for 2600.

Right, I was just trying to understand whether from the third quarter we would have sort of a better period of profitability because we will cycle through the 2600 having been on for full year. Is there anything you can say on that?

Really you know, basically we’re an integrate service provider so mobile is just part of our business. But we already disclosed the percentage or the absolute amount we expect to stand in for mobile so the maintenance and the CapEx spending are included in those numbers already we offer, okay. So, I’m sorry I don’t really have any further disclose for that.

Okay, alright, thank you.

Thank you. Our next question is coming from [indiscernible] UBS, go ahead please.

Hi, management. I’ve four questions which may be little more. One is about the 4G subscriber, we’re affected by the SIM card consolidation for about a year or more and when do we expect it will be the turning point? And my second question, I noticed that handset sales was increased like 14%, which is a lot would you remind us why it increased so much in a way, did erased our handset subsidy? And my third question is about the other spectrum auction. Any information about the time and how do I expect it will be? My last question is about the special lower rate plan, are we expected to terminate it soon or not? That’s my questions, thank you.

Okay, about the 4G subscribers we see same consolidating will continue to fall a while and there is no fine to feed at this point of time. It is hard to predict when the market same number will revert to their growth. However, we expect there is opportunity when IoT service widely offer in the 5G age.

Thank you.

Thank you for your question number two. As mentioned in the presentation earlier we will focus more on strengthening subsidies if you can see by allocating more resources to the high end fund of the plans, but at the same time we’ve decreased the subsidy and be more accretive for the mid to no end plans territory. So the handset cost is about 14%. The spectrum auction time is about October.

And do you have any color on that?

In October and the spectrum to be released this time is so to about 150Mhz, 1800Mhz and 2100Mhz and the regulator already gave the flow price of NT$29.4 billion which is higher than previous rounds on per mega basis. And your last question is…

The special plan 699?

I think that 699 we kind of – it’s still out there in the market but it’s not really, not attracting anymore because we decreased the subsidy level and we also decreased the minutes we offer so it’s – we try to move so we can put into the high tier, I think that’s how we plan. And it proves to be – it really worked out in second quarter, so that’s why we mentioned about it. Overall subscription profile we see this time, we’ve more high end subscriber coming in the second quarter.

Thank you and by the way one follow up question. We do not expect further special plan, right? We will expect to the – I saw our competitor will raise more aggressive there?

The answer is, we see after the market to look at the market sentiment but of course you understand that. We will like to move customer to higher team plan.

Okay, okay, I understand thank you.

Thank you very much. Our next question is coming from Varun Ahuja, Credit Suisse, go ahead please.

Yes, thanks for the opportunity. I’ve got three questions. First if you look at your mobile 4G subscriber base I think the penetration rate is more than 60% now. So how does the management think about monetizing the 4G investment that has been made clearly if you look at your performance, the EBITDA has been declining, and obviously the consolidated performances have also been weak? So how does the management think about now the investment that has been made on 4G, how do you for the next two to three years plan to monetize and show some returns on the same? Secondly, on the CapEx part it seems, do you expect very large amount of CapEx in second half. It seems to me running the same story as in last year where again you had to cut the guidance so just wanted to hear on CapEx, is it any project specific CapEx that we’re looking in second half that will lead to achieve the guidance that you have given? Thirdly, second half do you think because last year second half EBITDA was declining because you raised your channel commissions, do you think the second half the performance should be much better because you have an easier comp compared to last year? Thank you.

About how to monetize the 4G investment discussion. As we mentioned in the presentation earlier that we will focus on strengthening our subsidy efficiency by allocating more resource to the high end bundled print. But at the time we have decreased the subsidies and removed credits for the mid to low plans gradually. And considering the handsets subsidy costs and to be borrowing to end customers whole counter period we’ve seen the subsidy efficiency improve on the hours shortage. Promising our promoting our high end plans. The second question, on the CapEx the increase of this CapEx budget this year is merely attributed to the 1gigabit per second coverage enhancement in addition we will allocate more resource within total CapEx budget to enhance mobile network and improve our service quality. Therefore, total CapEx this year is expected to be closer to the guidance. And the way we review our CapEx spending regularly to ensure that optimal CapEx investment. And also strengthen our network quality to maintain our leadership in the market at the same time.

We believe the total volume in the second half in mobile performance we believe the fourth quarter last year is kind of a bottom. You see the first quarter, second quarter we’ve small improve but not big enough but we look at our ARPU. ARPU level actually have some small increase quarter-over-quarter. We do expect in the third quarter whatever numbers you kind of declined, but in fourth quarter we can get back to you, the fourth quarter this year I think our ARPU level can get back to the fourth quarter last with this kind of level. So it’s kind of bottom up, this is what we expect. But 4G no. In next year we still have to factor in the market competition and the decline of the voice usage. We exactly know the whole situation probably kind of a flat for – versus – the next year the ARPU level kind of flat which is this year.

Just to follow up, how much of your improved performance in fourth quarter, little bit second half is also based on, dependent on iPhone success, new iPhone model success, is there any factor built into that?

Not big number. This year’s ARPU should be still lower than what we had in the last year. So it’s not a big jump but if you see the quarter-over-quarter’s number it’s trend up a little bit, still encouraging.

Thank you.

[Operator Instructions] The next question is coming from Jack Xu, SinoPac Securities, go ahead please.

Hi, thanks for giving me the chance to ask the question. I’ve another two questions. One question is how will we to improve our 4G subscriber experience, will we at a more – I mean, best in hardware or will we use the more technique like the TA carrier aggregation. How will we to improve the user experience by the 4G? And this is first part of the question. And the second question is, could you inform us more about the ICT business or how will this, the mostly important thing or most of the project for the ICT is taken care with…?

This year we’re allocating more resource within capital CapEx but to enhance our mobile network and improve our service quality.

As for the ICT business, the question now we’ve several projects going on especially like in [MICT] we’ve been working on in Taiwan in major cities, this is a continuous effort and of course, fourth quarter last year we launched IoT platform, it’s a open platform. We’re inviting the different industries, they can actually put their services on top of our platform. So we can, basically we would like to know, focus on – overall ecosystem. IoT is in tier one, so we would like to lead this kind – lead this industry to see if there is anything it can be helpful. So currently I think that there are several industries more important at the moment like FinTech, like the small manufacturing and like the security etcetera, this is what we’re working on right now.

Thank you.

Thank you very much. [Operator Instructions] Our next question is coming from [Indiscernible] go ahead please.

Hi, thank you for having me. I want to ask a little bit about MOD revenue sharing with the channel operator. Can you give us some color on how much do we expect this mechanism to improve our bottom line and when can we see the bottom line improved, any color would be greatly appreciated? Thank you.

I think, the new mechanism we mentioned about President can talk a little bit about here right now.

I mean, we’ve accumulated more than 1.3 million subscribers therefore this year we communicated with our channel provider for new revenue sharing arrangement which is based on the audience ratings. And randomly expected to win to win situation. Thank you.

For the – you mentioned about injecting to the bottom line and when we can see the better performance. I think currently we’re in the process, I think this new arrangement should lead us to a winning situation and we believe right now the audience has been educated to be more active and can subscribe their own channels not only the aggregate in a package. So, I think the performance we need to watch and monitor to see how it progress, but we believe it lead to the positive direction for sure.

Thank you.

Thank you. If there are no further questions I’ll turn it back over to President Sheih. Go ahead please.

Okay, thank you for your participation, see you next time.