[Korean] Good afternoon. Welcome to the conference call for the Fiscal Year 2014 Third Quarter Earnings Results by SK Telecom. This conference will start with a presentation, followed by a Q&A session. And now, we'll begin the conference of the Fiscal Year 2014 Third Quarter Earnings Results by SK Telecom.

[Korean] Good afternoon, my name is Young-Gyu Park, the IRO of SK Telecom. Today's earnings conference call will consist of the earnings presentation by our CFO, Soo Cheol Hwang, of the earnings highlights of Q3 2014 as well as the business plans and strategic direction, followed by a Q&A session. To help deepen your understanding, we have with us executives from the relevant business units. [Korean] We will provide consecutive interpretation for our international audience. Let me also remind you that all the forward-looking statements are subject to change, depending upon the macroeconomic and market situations. Let me now invite our CFO.

[Korean] Good afternoon, this is Soo Cheol Hwang, the CFO of SK Telecom. [Korean] Let me start with a consolidated financial results for the third quarter 2014. [Korean] Revenue stood at KRW 4,367,500,000, increasing 5.9% year-on-year and 1.4% quarter-on-quarter, supported by the widening LTE services and top line expansion of our subsidiaries. [Korean] Operating income edged down 2.7% year-on-year due to factors including increased competition in new subscriber market. Compared to the previous quarter, when the 45-day operational suspension took place, the operating income inched down 1.7% quarter-on-quarter to KRW 536.6 billion. EBITDA was on par with the same period previous year, but was down 0.5% quarter-on-quarter to KRW 1,257.6 billion. Net income rose 5.7% year-on-year and 6.7% quarter-on-quarter to KRW 531 billion, boosted by the consistent growth of SK Hynix. [Korean] That was a brief overview of the Q3 2014 financial highlights. I would now like to turn to the performance of each business line and our strategic direction. [Korean] ARPU came in at KRW 36,417, up 4.3% year-on-year and 1.1% quarter-on-quarter, owing to the LTE proliferation and the increased number of high-end price plan subscribers. To date, we have spearheaded the price plan innovation by launching unlimited data price plan and various TPO price plans optimized for each customer segment data usage pattern, to keep abreast with the rising data demand of the consumers. As a result, the unlimited LTE price plan introduced in April recorded 2.4 million subscribers as of the end of September, while the cumulative LTE subscriber number reached 16.21 million. The data usage volume per LTE subscriber grew 15% quarter-on-quarter as of the end of September. Due to such improved data usage environment and data volume increase, we anticipate the ARPU to continue growing beyond next year. [Korean] As for the network, we are…

[Korean]. We will now begin the Q&A session. Please go ahead with questions.

[Korean] [Operator Instructions] [Korean] The first question was provided by Yang, Jong In from Korea Investment Securities, and the next question will be provided by Kim Hong-Sik from Hana Daetoo Securities. Jong In Yang - Korea Investment & Securities Co., Ltd., Research Division: [Korean] I have the following 2 questions. As you are well aware, the Handset Distribution Act has been implemented for the past 1-month period, and I was wondering what's SK Telecom's management position regarding the October mobile telephony market conditions at the moment. How do you assess the market conditions now? And how do you foresee the outlook going forward? My second question has to do with the iPhone introduction in Korea. The first mobile telephony operator that has given its earnings conference stated that they will use iPhone as their leverage for marketing enhancement. So I was wondering, what your strategy is with regards to the iPhone introduction.

[Korean] This is the early, early stage of the implementation of this new law. Perhaps it is too early for us to judge about the effectiveness of the relevant legislation. However, what I could tell you is that the number of new subscribers increased and the number of port-in customers has dropped somewhat compared to the past, while the subscribers opting for the mid- to low-end price plans as well as handset-changing subscribers have gone up slightly compared to the past. So these are some of the changes we are experiencing at the moment. [Korean] And since the newly introduced Handset Distribution Act is expected to enhance the transparency with regards to the price of the handset terminals, we believe that, going forward, customers will be choosing operators based on the more fundamental competitiveness of the relevant operator, rather than simply relying on the subsidy amount. [Korean] And if I may give you the foreseeable future's outlook, we believe that more fundamental competitiveness related to competition in the market between the operators are anticipated in the market. And when it comes to the operator's cost structure, whereas in the past, most of our resources have been concentrated on the subsidy payout, now it will be more diversified into various areas such as alliances and various development of different types of price plans. [Korean] Of course, the immediate effects of the instruction of the Handset Distribution Act will not be manifested all at once in the market, and we are experiencing MNP number coming down compared to the past, and we are spending some expenses on the overall value enhancement of the total subscriber base in the meantime, therefore, we did not anticipate any dramatic improvement of the short-term earnings results going forward. However, if you look at it from the long-term perspective, I believe that all the operator's efforts to enhance the profitability will materialize in the future. [Korean] You asked about our countering strategy with regards to the launching of iPhone 6 going forward. SK Telecom, based on the consumer needs that are quite various in the market, will be offering differentiated products and services so that we could still maintain our upper hand in the competition. [Korean] Through various retention programs that we are launching and utilizing at the moment, we believe that we will be able to fully absorb the replacement demand for iPhone users going forward. And by leveraging differentiated services and benefit programs, we believe that we could still maintain our leadership. [Korean] So including the large-screen phone-related needs of coming from the iPhone lovers in the market, I believe that we will be fully able to absorb such extra demand in the market with our competitive edge.

[Korean] The next question will be presented by Kim Hong-Sik from Hana Daetoo Securities, and the following question will be presented by Kim, Hoe Jae from by Daishin Securities.

[Korean] Two questions for me as well. Recently, after the launching of the Handset Distribution Act, I believe that the market response has been quite deteriorating. And I believe that customer complaints have been rising, which is not so positive for the industry players. So I believe that the economy has to be revitalized for people to really perceive benefits really arising from this new law. So I was wondering, as a way to deal with such complaints, I was wondering whether you have plans to introduce some low-price-point foreign handsets going forward? So what are your strategies with regards to the launching of foreign handset terminals aside from iPhones? And number two question is the following: recently, the press has been talking about how the newly introduced Handset Distribution Act will only boost the profitability of the telcos. However, in my personal opinion, this law itself will not have any direct link or effect immediately on SKT's profitability enhancement. Is my assessment correct?

[Korean] To address your question, once again, I shall repeat myself in saying that the introduction of this law has been quite recent, so I believe that it is a little too early for us to give a full judgment about the pros and cons for the telcos in the market because of the law. From SKT's perspective, our priority has always been on enhancing a diverse handset optionality for our subscribers. And as part of such wider choice offering, we are reviewing various foreign handsets at the moment. [Korean] Compared to the past, I believe that a lot of the foreign-made smartphone handsets have been quite improved in terms of the design and functionality. I believe that the Korean consumers tend to have very high expectations about handset quality as well as functionality. So aside from those 2 factors, price will be also important, and we need to make sure that these handsets could handle the superior service that can be offered through SK Telecom. And we are also reviewing after-service optionalities for those phones after we sell these handsets in the market as well. So if we find foreign handsets that meet all these requirements, we are more than willing to embrace the launching of such handsets. [Korean] Regarding your second question about the impact on the profitability of the operators after the introduction of the Handset Distribution Act, as far we are concerned, I believe that our basic motive or the original intention of this law began with the need for more nondiscriminatory benefits going in terms of subsidies. In the past, a lot of the MNP subscribers were receiving most of the benefits, so they took up the lion's share. But going forward, with this law, we are striving to widen the number of subscribers that could benefit from the subsidy offering. And also from the telcos' perspective, we are trying to change the overall paradigm from the old way of trying to spend more acquisition cost directly, indirectly, vis-a-vis the customers and the dealers, and move towards a new paradigm of competing based on the fundamental services and quality. [Korean] As mentioned earlier, we don't think -- we think that MNP market will be stabilizing in terms of our marketing expenses. However, because we will have to still spend quite a few budget on the retention policies on all the subscriber base, I don't think that it would be right to expect immediate profit boosting of the operators following the introduction of this law. However, if you look at it from the long-term perspective, if we address the customer experience and increase the benefits that they require, in the long run, I'm sure that we will be able to realize not only profitability, but also the enhancement of the enterprise value.

[Korean] The next question will be presented by Kim, Hoe Jae from Daishin Securities, and the following question will be presented by Moon, Jee-Hyun from KDB Daewoo Securities.

[Korean] I have 2 questions. First of all, the number of LTE subscribers is showing steady increase in terms of the trend, and the data usage is also growing in line with the number of subscribers. I was wondering, how much network capacity SK Telecom currently has? Could you please precisely answer the questions by saying -- by using average, what volume of data can you accommodate? How many concurrent users at the same time? And my second question has to do with SK Planet, when it was first spun off in 2010, you mentioned that your 2016 target for revenue was KRW 3.5 trillion, and enterprise value target was KRW 5 trillion. So can you share with us your outlook on SK Planet in the mid- to long-term perspective?

[Korean] With regards to the data usage capacity, we believe that we have sufficient network resources right now to accommodate all the needs. With the launching of the LTE Unlimited price plans, I believe that even after the launching of this price plan with our current spectrum that we hold and within the resources limit of our network, I believe that the increased portion is fully addressable with our current resources. And after the launching of the Unlimited Price plans, the number of subscribers grew quite a bit and people's data usage pattern changed to more large data volume usage pattern. So many people are concerned about the traffic going beyond the network capacity. However, through our internal thorough monitoring process, we will be able to tightly manage that we will not be able to -- we will not be reaching any shortage in terms of the data volume. And so I would like to hand it over now to Network Headquarters' Head so that he could elaborate on this issue.

[Korean] This is the head of the Network Division. Let me address and elaborate on the previous answer given. As of September, per LTE subscriber average data usage volume was 2.9 gigabyte. And in 2013, we actually acquired additional spectrum and we also have the 10 mega worth of 1 directional 2.1 gigabyte spectrum as well. So with such a current spectrum resources, we will be fully able to accommodate all the data needs. And we are currently using various traffic prediction tools. And so far, the actual results of the data usage has been fully in line with our prediction. [Korean] To address your second question regarding our midterm and long-term perspective on SK Planet's revenue as well as its earnings, let me address the question in the following manner. It's been about 3 years since SK Planet has spun off. And SK Planet has designated 2014 at the year 1 of next commerce, which augurs the innovation that eliminates the barriers between online and off-line regimes. So in 2014, SK Planet will work towards becoming a global leader in the next commerce arena. And so starting from 2015, they will be able to begin to reap actual fruit in terms of the earnings. [Korean] SK Planet, in both Korea and also the global market, are realizing meaningful results to date. For instance, the 11th Street is maintaining its growth trend while the T Store and T Map and such relevant internal business models are sufficiently and consistently enhancing their market power. And as you heard earlier, it has recently acquired Shopkick. So with those measures, we believe that we will be able to fully meet the enterprise value target of KRW 5 trillion by the end of 2016, as was communicated earlier. [Korean] We have with us SK Planet's financial division head with us, so he will elaborate a little bit on this point.

[Korean] This is the head of the Financial Division of SK Planet. To answer your question, SK Planet has been supporting the consumer needs and meeting all the smart requirements of the consumers in the market. So during the first half, we have secured a better position in the market. And as you are well aware, the recently launched Syrup has secured over 12.32 million users to date, which is a growth by about 22% year-on-year. [Korean] To elaborate a little bit more, the recently launched Syrup order has gone through service upgrades, and also we are expanding marketing activities online to off-line manner in major areas, such as Shenzhen and Gohyeon-dong or Seoul. And on the global front, especially in the U.S. market, we have acquired Shopkick, which is a leading company in that relevant field, so that we could further reinforce our capacity in the next commerce arena. And we plan to further grow our next commerce business, both in Korea and overseas, and begin to actually achieve and deliver performance in the future. [Korean] As for the 11th Street, the mobile 11th Street is continuing its growth trend and the recently launched shocking deal is further securing its competitive edge. As a result, the GMV has grown by almost 20% year-on-year, maintaining a very robust growth exceeding the market expectation. On the global front, including in countries such as Turkey and Indonesia, we are continuing to make success stories, mainly around Southeast Asia. SK Planet will continue to deliver meaningful performance in the next commerce area, while maintaining 11th Street growth trend so that we could fully meet the earlier communicated target of enterprise value of KRW 5 trillion and other performance by the end of 2016.

[Korean] The next question will be presented by Moon Jee-Hyun from KDB Daewoo Securities. And the following questions will be presented by Chung Youngwoo from CIMB.

[Korean] I have 2 large parts of questions. First of all, regarding SK Networks. I have a question about the transfer of the retail business with regards to SK Networks. It seems that such action has bigger impact on the cost side rather than the revenue side, and I'm wondering whether this trend is something temporary due to the lackluster market in the handset sales during this third quarter? Or is it because you are willing to absorb initial expenses in the transfer process? And also my second question has to do with your new markets. I believe that from new growth markets in Korea, your target in the beginning of the year, in terms of your guidance, was revenue of KRW 1 trillion. But your third quarter results seems to be rather weak. So I was wondering, is that annual guidance still achievable? And if so, what would be the drivers? And relatedly, I believe that you're currently rolling out LTE network in Malaysia. Can you give us some updates on that?

[Korean] With regards to the first question about SK Networks, as you know, PS&M has partially acquired the retail network of SK Networks, and because we are reporting based on the consolidated basis, I believe that SK Networks' revenue and also SK Telecom's expense offset each other. [Korean] To elaborate a little bit further, the reason for the increase of the consolidated product revenue-related costs or expenses, it is because of the following reasons. Whereas our commission payout to SK Networks that we used to pay out has come down, PS&M is actually paying the manufacturers the cost for the handsets. And that handset price was a little bit higher than anticipated. [Korean] To answer your second question regarding the likelihood of us meeting the annual guidance on the new businesses, I believe that SKT has communicated with you in the beginning of the year about revenue of KRW 1 trillion from the Solutions business. And up to Q3, yes, the revenue has steadily grown, but it is slightly missing the target that we have set out. [Korean]. So up to the third quarter of this year, the revenue increasing trend seems to be a little bit stagnant at the moment, but looking at our existing business structure, we are in the process of converting our sales efforts into a recurring business with repeat sales afterwards. So although we might miss the annual guidance originally communicated slightly, I believe that beyond this year, we will be able to continue to grow in those respective businesses. [Korean] With regards to the Malaysia-related LTE service status, we have made the necessary investments as you have mentioned. We have entered into the mobile telephony market in Malaysia and we had been planning to enter into the LTE service area. [Korean] As a strategic partner of P1 in Malaysia, we want to maintain our status as an important partner, and we do have options and plans to relay the network know-how and technologies regarding LTE going forward. So we are reviewing various options at the moment, but nothing conclusive has been decided yet.

[Korean] The next question will be presented by Chung Youngwoo from CIMB, and there are no participants for the following question.

[Korean] My question has to do with ARPU. I believe that after the introduction of the Handset Distribution Act, the percentage of new subscribers opting for the high-end unlimited price plan has come down slightly. But still, the level is higher than those of your competitors, it seems. So at this current level, do you believe that you will be able to stabilize the proportion of the high-end priced plan subscribers going forward? And could you also answer that question with relations -- also relating it to the foreign handsets and how the customers could actually buy their handsets themselves going forward? And the second question has to do with the following question. I believe that looking at your charts, in Q3, the 3G and 2G subscriber migration has slowed down somewhat. So what is your plan to manage these subscribers? And do you have any long-term plans to further boost ARPU of these existing subscribers?

[Korean] To answer your questions regarding the lower proportion of the high-end unlimited price plans for -- after the launching of the Handset Distribution Act, and you wanted to know about our position with relations to the handset blacklist system with regards to the foreign handsets as well. As mentioned earlier, after the introduction of this new law, compared to the past, the number of unlimited price plan subscribers has edged down slightly, recently. However, if you consider the increasing trend of data usage patterns of the subscribers generally, I believe that the value that can be perceived by the customers with regards to the unlimited price plan can be still quite valid. So we believe that the inflow or the maintenance of the subscribers opting for such unlimited price plans will be very likely. [Korean] And relatedly, I believe even those customers opting for the foreign handsets direct repurchase would also have data usage needs just the same. So I believe that gradual increase of the share of the unlimited data price plan subscribers can actually take place going forward. However, keep in mind that we have not decided to really introduce the foreign handsets as of yet, so we will have to wait and see after we come to that conclusion about the foreign handsets first. [Korean] We have with us the Head of Marketing. So he will elaborate on the issue as well as address the second question regarding our plans to enhance ARPU on our 2G and 3G subscribers.

[Korean] My name is Kim Sun Joong from the Marketing Strategy. [Korean] Well, although the ARPU related question was partially answered by our CFO, let me elaborate on that point slightly, and then I will move on to talk about the LTE migration plan. [Korean] With regards to the ARPU of the unlimited data price plan, after the introduction of the Handset Distribution Act, the growth speed of the subscribers opting for this price plan has slowed down somewhat. However, recently, the trend has picked up slightly. So we believe that ARPU trend will be enhancing going forward. [Korean] And also recently launched new products and services, including premium pass, will help us greatly in enhancing our high ARPU by retaining and acquiring high ARPU subscribers. [Korean] And with regards to the 3G migration into LTE, I could tell you that by the end of 2014, the LTE penetration rate is expected to reach about 60% level. And by the end of next year, year 2015, it could go up to 70%, and up to 80% at the end of 2016. SK Telecom through such LTE migration efforts will work -- we will have a lot of buffer to further boost our ARPU through such efforts. And we will pursue our migration plans for 2G and 3G subscribers as was planned. [Korean]

[Korean] The next question will be presented by Kevin Kwok from Turiya Capital.

I have 2 questions. One question is on the marketing cost. It didn't really come down quarter-over-quarter and when we look at the quarter compared to the second quarter, but we are seeing also a higher amount of gross additions in -- during the quarter compared to the second quarter as well. So I wonder -- I'd like to understand what happened, basically, with a higher gross add base in the fourth quarter compared to second quarter. I think that's my first question. I think the second question will be on the SK Network. We talked about the DS&M. And I just want to get a sense on how -- what are the relevant revenues and expenses and whether that business is profitable or not? [Korean]

[Korean] Let me first give you the answer regarding the trend of marketing expenses quarter-on-quarter compared to Q2. While our competitors experienced their operational suspension across the first quarter and the second quarter, so they were evenly distributed. However, as indicated at SK Telecom our -- a sales suspension was applied completely during the second quarter. So we were not able to win any new subscribers or cater to the handset changing subscribers at the same time. Now during the second quarter, because of such sluggish sales results, the operational income, relatively speaking, might appear to be rather sound. However, if you look at the third quarter income comparison, we had to compete a little bit more proactively compared to the previous quarter because we lost on some subscriber numbers, especially in the MNP market. So we did have to offset for that. So that ended up incurring some expenses. So that is why the overall marketing expense for Q2 and Q3 seems pretty much on par. [Korean] And with regards to the PS&M and its revenue and expense related picture, I believe that PS&M's business model is designed so that it is very much affected by the market dynamics. So there are some variables that we have to watch for. For instance, as the market stabilizes, PS&M's sales of handsets might actually slow somewhat. So there is slight room for revenue reduction compared to the past with the stabilization of the market. However, at the same time, because PS&M has the sales network which was acquired from SK Networks, I believe that it could pretty much offset that shortfall as well. [Korean] Amidst the market environment where the Handset Distribution Act is implemented, PS&M is continuing to enhance its retail competitiveness, and also it is trying to provide various distribution services that are differentiated. And at same time, it is trying to curb its cost structure as well. So going forward, we believe that PS&M has ample room for growth in the future. [Korean]

[Korean] If there are no further questions, now I would like to invite our CFO for his closing remarks.

[Korean] Thank you for participating in SK Telecom's conference call. All your insightful questions and interest will contribute greatly to the management of the company. [Korean] As mentioned earlier, SKT is ushering in the ICTnomics era with a strong commitment for leadership in seeking changes in the right direction in the fundamental telecom services, which will serve as the overarching framework. Through such efforts, we will lead innovation amidst changes, enhance enterprise value from diverse business opportunities, while doing our best to improve shareholder value by diverse means. Thank you very much.

[Korean] This concludes the earnings conference call for the third quarter 2014. Thank you.